Marina Matselinskaya:

Good morning, everyone. Welcome to ExxonMobil's First Quarter 2024 Earnings Call. We appreciate you joining the call today. I'm Marina Matselinskaya, Director of Investor Relations. I'm joined by Darren Woods, Chairman and CEO; and Kathy Mikells, Senior Vice President and CFO.

Darren Woods:

Good morning, and thanks for joining us. Our strategy and the way our people are executing created significant value in the first quarter. We delivered $8.2 billion of earnings and $14.7 billion of cash flow. Even more important, we continue to strengthen the underlying earnings power of the company, which both Kathy and I will discuss in more detail on today's call.

Kathryn Mikells:

Thanks, Darren. We've established a consistent track record of improving the earnings power of our business. Across the company, our teams have been laser-focused on investing in competitively advantaged, low cost of supply, high-return opportunities delivering execution excellence in everything we do and driving additional structural cost improvements.

Darren Woods:

Thanks, Kathy. I'll leave you with a few key takeaways. Our work to improve the fundamental earnings power of ExxonMobil is continuing a pace. By executing with excellence on our strategy, we expect to grow our earnings potential by an additional $12 billion from 2023 to 2027 at constant prices and margins, a growth rate of more than 10% per year. A significant driver of this earnings growth will be our delivery of additional structural cost savings totaling $15 billion by 2027.

Operator:

Good morning, everyone, and welcome to the Exxon Mobil Corporation's Fourth Quarter 2023 Earnings Webcast. Today's call is being recorded. I would now like to turn the call over to Ms. Jennifer Driscoll. Please go ahead, ma'am.

Darren Woods:

Good morning, and thanks for joining us. I want to start with the theme of the quarter, which frankly, has been a theme of the year, excellence in execution. Whether it’s operating our facilities, building projects, deploying technologies, trading, marketing, sales, supply chain, or any of our other activities, the men and women of ExxonMobil are setting and holding themselves to very high standards as they execute their responsibilities. Their hard work and commitment drove the strong results we reported today and are the foundation of our success. At the end of the day, it’s all about our people. They make the difference and are delivering industry-leading results. And nothing is more important than the safety of our people. Keeping them safe requires intense focus and relentless discipline, 24 hours a day, every single day. For many years we’ve outperformed industry benchmarks for workplace safety. Over the last several years we’ve been implementing improved systems for managing both personnel and process safety, leveraging best practices from across our company and industry, our own and others. These efforts are paying off with continued improvements in the number and severity of incidents. The discipline needed to consistently deliver industry-leading safety performance manifests itself in all our work. We see it in our project teams, who are delivering large capital projects at top-quintile performance on cost and schedule. We see it in the reliability of our operations, where we achieved record performance in both the upstream and refining. We see it in our environmental performance, where we set several new records. And we see it in the successful management of the transformational re-organizations we’ve made over the last several years. Results are clear. By any measure, 2023 was an outstanding year. We delivered $36 billion of earnings, strong cash flows, and a 15% return on capital employed. Our strategy, introduced in 2018, coupled with consistently strong execution, is delivering results that lead industry across a range of metrics, including earnings and cash flow growth, total shareholder distributions, and total shareholder returns since 2019, the baseline year of our plans. On a constant-price basis, we more than doubled earnings in 2023 versus 2019, demonstrating the improved earnings power of the company. The growth in profitability reflects significant progress in high-grading our portfolio of assets through advantaged projects, divestment of less strategic operations, and significant cost reductions. During the year, our divestments generated more than $4 billion of cash proceeds. And we also announced two value-accretive acquisitions. Denbury, which closed in November, provides opportunities to profitably accelerate our Low Carbon Solutions business with a compelling, end-to-end, customer decarbonization offer. Pioneer, which is expected to close in the second quarter, will further differentiate our advantaged Upstream portfolio. The synergies will create significant shareholder value and accelerate Pioneer’s net zero ambitions by 15 years, to 2035. In 2023, we made significant advances in a number of innovative solutions. We entered the lithium business, where we see an opportunity to supply approximately 1 million electric vehicles per year by 2030 with economically advantaged production that has a much smaller environmental impact than today’s supply. In the carbon capture and storage space, we recently completed the construction of a pilot plant to further develop a unique, proprietary technology, which has the potential to significantly lower the cost of direct air capture. We also launched Proxxima, a thermoset resin with a high value in use for coatings, infrastructure, automotive parts, and wind power, made from low value components used in gasoline. We also took a further step in reducing cost, leveraging scale and improving effectiveness with the formation of three new centralized organizations, Global Supply, Trading, and Global Business Solutions. This change provides additional opportunities to grow deep expertise across a broad portfolio of critical business capabilities. Today, we’re convinced that no other company can match the depth and breadth of development opportunities that ExxonMobil offers. It’s no surprise that for the 11th year in a row, we were recognized as the most attractive US employer in the industry for engineering students. This is another key competitive advantage. Our plan for 2024 remains anchored in our existing strategy, building on world-class execution and the performance we delivered last year. We set a high bar for ourselves across all aspects of the business, from safety to operational excellence to financial performance, and have confidence in our team's ability to consistently deliver. For 2024, we expect to invest $23 billion to $25 billion to grow our portfolio of advantaged, low-cost of supply assets, further shift our product mix towards higher value, higher margin performance products, and reduce emissions, both our own and others. Our plan also continues to structurally reduce costs to achieve $15 billion in structural cost savings through 2027. We have opportunities to enhance supply chain efficiency, further improve maintenance and turnarounds, modernize data management, and simplify business processes. In Low Carbon Solutions, we’ll continue the integration of Denbury and look to add additional customers to our US Gulf Coast network. As we noted during the Corporate Plan update in December, we’re now pursuing more than $20 billion of lower emissions opportunities, evenly split between reducing our own emissions and reducing third-party emissions. Overall, our portfolio of low carbon investments is expected to generate returns of approximately 15%. Our Upstream portfolio will be further transformed when we close on the transaction with Pioneer. By combining the capabilities of our two companies and leveraging the advances we’ve made in technology, we expect to recover more resource, more efficiently, with lower emissions. We’ll provide more detail about this compelling combination at our Spotlight event following the close. Our results in 2023 once again demonstrated the strength of our strategy. As I reflect on the past year, I have tremendous pride in what our people accomplished and a strong level of confidence in our continued ability to lead in the years ahead. Finally, I want to thank our shareholders for their continued confidence and support. Now, I'll turn it back to Jennifer.

Operator:

Thank you, Mrs. Driscoll. The question-and-answer session will be conducted electronically. [Operator Instructions] The first question comes from Neil Mehta of Goldman Sachs.

Darren Woods:

Sure. Thanks, Neil. Good to hear from you again. Maybe just start with a little bit of perspective. If you think about where we have been driving efficiencies and what lies behind the improvements in structural cost. We've made tremendous changes in the organization and we've been doing that each successive year, sequenced with respect to what needs to come first, second, and third to make sure that we can effectively manage that. We're still in the early stages of taking advantage of all the changes that we've made going back in time with our global technology organization, with our product solutions organization that frankly brought refining together with our marketing and then together with chemical. So a lot of restructuring, a lot of opportunities, and all the organizations see a path to significantly improved effectiveness in executing the business and, to your point, a significant path to efficiencies. On top of that, we just launched our global supply chain organization. We just launched our global business solutions organization and our trading organization. So they're early in their process, and all of them see significant opportunities for efficiency. So I would say $9.7 billion is a reflection of the hard work coming from the reorganizations that we've done and we're early in that and then we've got additional reorganizations to take advantage of. That $15 billion that you referred to is not a target, it is in our plans and the plans reflect what the organizations are working on. So what are some of the areas? We've seen a lot of benefit today by a centralized approach to enhancing our maintenance and our turnaround processes. We've taken a lot of cost out with respect to that. We see an opportunity to bring further cost reductions there. The supply chain organization brings a huge opportunity. In the past, we had very fragmented supply chain organizations across all of our businesses. We've now consolidated all that. We see a lot of opportunities to bring together our data and our processes and harmonize those and do those consistently across all of the organization. And then a lot of continuing optimization within the base business, taking advantage of the new construct and learning from one another, that's a huge part of the go-forward reduction. So I would just tie all that to the ongoing change and the fact that we now have a good line of sight across all of our organizations around the best way to do things and the most efficient ways to do things. I'll hand it over to Kathy if there's anything to add to that.

Neil Mehta:

Thank you, Kathy. Thanks, Darren.

Operator:

The next question is from Doug Leggate of Bank of America.

Darren Woods:

Yeah, good morning, Doug. Thanks for the question. Maybe I'll start with the back end of your question around the CapEx. I mean, it should be clear, hopefully it's clear, we've provided guidance in a range in CapEx to give you a perspective of when we start the year based on the plans that we put together the previous year where we think we're going to end up and spend across the year. Obviously as we're going through the business, each of the businesses are clear on their objective to find value creative opportunities and to capture those as quickly as possible. So we've got an ongoing process. If we see an opportunity that we weren't aware of at the time of putting together the plan, we're not constraining our activities based on some artificial number or the guidance that we've put out. We're very focused on making sure that it's going to be an effective use of capital, that we can efficiently execute what's required for that capital, and then that there's value behind it and there's an advantage in it. So that's how we're managing. What we talked about in the release with respect to our CapEx in 2023 reflects just that, incremental optimizations as we're going through the year. And my view is we'll continue to do that as we go forward into the plan years. Obviously, we've given you some guidance that we believe reflect where we'll end up. But as we work the opportunities, we're very focused on that. I think, the short term, what we've done with Guyana, you're seeing today in Payara, where we brought that online. And frankly, in January, well ahead of our plans, reached nameplate capacity. And part of that was around the optimization of the drilling and making sure that we had what we needed to bring that up quickly. In terms of the broader objective to get to 2027, I mean we're on that plan and we're actually delivering the value that we laid out in 2018. So I feel really good about the progress we've made. We noted in the release that if you look at just from 2019, the year before the pandemic, the advances that we've made in the business, on a flat price, take margin, take price out of it, we've doubled the earnings capacity of the corporation from 2019 to 2023. We've grown earnings at compounded annual basis by 40%, greater than 40%. We've grown cash flow from operations almost 20%, greater than 15%. So I think significant progress we've demonstrated at the work that we're doing, projects that we've put in place, the reorganizations that we've executed, the cost that we're cutting out of the business are all driving us towards this improved valuation and frankly the plans we have going forward are going to continue to do that. So the targets that we've laid out, what we communicated in our December company plan release, basically those are plans and we feel that we're right on track if not slightly ahead of delivering on those. Kathy, anything to add to that?

Doug Leggate:

I think we would concur. Thank you very much indeed.

Devin McDermott:

Hey, good morning. Thanks for taking my question. So I've gotten some inbounds this morning just on the 2023 spending. And, Darren, you kind of alluded to it in your response to the prior question. You were able to pull forward some CapEx for Guyana and Permian in 4Q. I was wondering if you could talk a little bit more about the drivers of that, the types of efficiencies that you're seeing and what specifically you're able to accelerate and then how that influences your outlook for spending and production in both -- for both assets in 2024?

Kathy Mikells:

I’d just say if you look at the specifics of what we delivered as a result of actually spending a little bit more on CapEx, I think you see that just goes hand in hand to how we drove value for shareholders. So in the Permian, we had guided to 600,000 kind of oil equivalent barrels, we came in at 620,000. In Guyana, we had said 380,000, we came in at 390,000 right? And you think about where we're at in Guyana today and we've got Prosperity, the third boat which is in the Payara development already up to nameplate capacity as we stand here today. And that's because we made the decision to drill more wells to ensure that we could get that boat up to capacity as quickly as possible and our organization absolutely delivered on that. So those were the right economic decisions that drove value for our shareholders.

Operator:

The next question is from John Royall of JP Morgan.

Darren Woods:

Yeah, good morning, John. Thanks for the question. I think, just maybe step back and talk a little bit about the process. Organization does its best to design the projects for the capacities that we want to deliver and then as they hand the cap, the projects group hands that off to the operating group. They're obviously, as they begin operation testing to see where we are with respect to constraints and every -- the advantage that we have here is that we've tried to stick to some consistent design. This design [won’t build many] (ph) concept, we've tried to the extent possible, maintain consistency from boat to boat. Obviously, as the subsurface and the complexity of the developments change, we have to make adjustments. So it's not quite a cookie cutter approach, but we tried to maintain a level of consistency. One, because that keeps your capital cost down. But two, it allows us to take the learnings from the previous boats and apply it to the one we just started up, and advance things faster to do things quicker. And a great example for Prosperity is how quickly we managed to bring that unit up and get flaring down and get to nameplate capacity. That was -- we did that essentially at record times, which is a reflection of the fact that the organization as they've been bringing these units -- these production units on line that they're learning and then taking those learnings and forwarding it to the next post. So my expectation is you'll see us move faster and faster as we go. Difficult to predict exactly what that ramp up looks like or the step changes if you will because it'll be a function of what they bring into -- what the next constraint that they overcome to make sure that we can continue to run those facilities safely within all the operating limits but at the same time maximize their value. And so I would say take the previous ramp ups as a basis and then our expectation is the organization will find ways to do it even better.

John Royall:

Thank you.

Bob Brackett:

Good morning all. At the risk of oversimplifying, if I think about 2023, it was a very strategy-focused year, Denbury, Pioneer, Lithium. If I look at 2025, it's a major project delivery year. 2024, is this a year of execution or could there be some level of strategic interesting moves that we should think about?

Bob Brackett:

Very clear. Thanks.

Operator:

The next question is from Ryan Todd of Piper Sandler.

Darren Woods:

Yeah, sure. I think the Denbury acquisition, just maybe a slight update on that first is, we've closed it, we've been going through the integration process and frankly continue to be very pleased with what we see as the opportunities to integrate that with the work we're doing around our Low Carbon Solutions business in carbon capture. So we see huge potential in terms of linking together all the opportunities to reduce emissions, high concentration emissions along the US Gulf Coast and along that pipeline system. So the team's doing a lot of work around developing the business there, a lot of work with potential customers around how we can help capture their emissions, and a lot of work around the operations and improving and growing the capacity of that pipeline. So all that's ongoing. My expectation is, with time, when we -- as we negotiate the opportunities with customers, we'll see more and more deals that bring emissions into that pipeline. That's certainly the plan. But I would tell you we're very focused on building this business for the long term. If you think about what we're trying to do there with respect to addressing the risk of climate change and significantly reducing emissions for third parties, that's a business that doesn't exist today anywhere in the world. We're trying to make sure that as the first mover here that we establish a very strong foundation for business that we expect to be around for decades to come. And so my guidance to the team is while we want to move quickly to reduce emissions and to get customers and to grow the volume of emissions we're reducing, we don't want to do that and sacrifice the value opportunity here. And so we're striking that balance. And I think what you'll see happen is, we'll bring on customers and grow that business in a way that is value-accretive and generates the returns that we need for the capital in that business.

Darren Woods:

You bet.

Biraj Borkhataria:

Hi, thanks for taking my question. I had a question on gas realizations because they were just well ahead of, at least what we had modeled using the kind of rules of thumb and the portfolio mix you put out before. So is it just a case of the trading contribution coming into that number or is there something else driving that? And then just one quick clarification on the underlying cash flow from operations. Again, that was ahead of where the earnings beat would have suggested it would have been. So is there anything one-off in nature in the CFFO number that we should be aware of for 4Q? Thank you.

Kathy Mikells:

Yep. And so I'll just speak specifically to cash flow from operations and I think you're referencing the quarter but I'm happy to talk about the quarter and the year. Our cash flow from operations, if you look at the quarter was $13.7 billion. If you exclude working capital, we would have been at $16.9 billion. You're mentioning a beat relative to the street, and so was there anything unusual going on? As I look at people's models, I think sometimes they struggle to get depreciation and amortization right, so that's the only thing I'm going to speak to. And when we have a quarter where we're taking impairments, then we get an increase kind of in terms of a non-cash add back that flows through to cash flow from operations and we obviously took an impairment in the quarter. So that's my best guess as to anything that might be nuanced. Otherwise, no, nothing particularly unusual going on.

Operator:

The next question is from Sam Margolin with Wolfe Research.

Darren Woods:

Good morning, Sam. I would -- I guess I'd take exception to the characterization that you've laid out there. It's not a function of the organization throwing additional nickels and dimes. We have pretty focused work programs to drive value here and frankly any discussion about spending additional money or making additional investments above and beyond what we've planned for has to come to the management committee. And so we've got pretty tight controls around making sure we understand what's the value proposition, how unique is the value proposition. This is not something we just turn loose to the organization and they start throwing on money as and when they see the opportunities to do that. So that's I think, the characterization that it's hard to hang on to this. I would think -- I would point to the success that we've had to date where we've delivered what is a very accretive advantaged set of capital projects. I think our track record demonstrates that we are not about going after volume or going after marginal investment opportunities. These things have to be unique. The hurdle to get into the capital plan is pretty high. We have -- if you look across the industry, we have a clear understanding of cost of supply. We know where we sit on the cost of supply curve. We know as new projects or opportunities come forward, we look at those in terms of where they sit from a competitive standpoint. They have to have a structural advantage. They have to be robust and resilient to the bottom of cycle conditions. If you lay all those conditions on, it's a fairly tight funnel that people have to get their spend through. And that doesn't change. That has not changed. And so I would just say, if we spend additional money, that money is going to deliver more than what was in the base plan frankly because it's on the margin. And I'll come back to, at the end of the day, we're not judging ourselves by basing -- by hitting some number that we've, or guidance that we've given from a year ago. We're judging ourselves on the ability to generate advantaged projects. And again, I just point you to the results that we are delivering. To grow earnings on a compounded basis at twice what the nearest competitor has done, or to grow cash flow from operations at twice what the next nearest competitor has done, doesn't come from investing in things that don't have the advantage that I just talked about. So I think our track record and the results that we're delivering demonstrate that the approach that we've taken here is working, and we're not going to vary off of that approach.

Sam Margolin:

Thank you.

Jason Gabelman:

Yeah, hey, good morning. Thanks for taking my questions. I first wanted to get your take on the outlook for the chemicals market going forward. 2023 was a bit of a trough year. Some of the industry participants are saying maybe we're getting close to turning the corner. And that would be meaningful given all the underlying investments that Exxon has made in the chemicals business. So just wondering your view on potential for market improvement and seeing the full force of some of those investments come through.

Jason Gabelman:

Got it. Thanks.

Paul Cheng:

Thank you. Good morning.

Paul Cheng:

Darren and Kathy, I want to ask about the trading operation. I think it seems like it's a very good trading year for you and a lot of your peers in Europe. Can you help us to maybe quantify that? What is the trading benefit for the year, whether in terms of millions of dollars or in terms of improvement in the return and whether that you think that is a repeatable? And after more than the last two or three years, what have you learned? Is there anything that you will do differently going forward in your trading operation? And whether you see the first quarter optimization opportunity set, is it similar to what you’ve seen in the fourth quarter, or is it getting worse or getting better? Thank you.

Kathy Mikells:

Yeah, the only other thing that I'd add to that is if you looked at our trading results on a year-on-year basis, in upstream we were lapping kind of a big mark-to-market gain in 2022, right? So that impacted our results. And I've mentioned time and time again that quarterly results, especially as a result of that movement in mark-to-market, will kind of ebb and flow. And sometimes we get price timing nuances in the quarter. As we came to the end of this year, those price timing nuances that we saw in the third quarter had fully unwound by the fourth quarter. So I think we start the year overall in a pretty good place.

Kathy Mikells:

No, we don't disclose that. And I think actually all our peers have a pretty high sensitivity to just -- competitive sensitivity in terms of disclosing that number. But I think Darren put overall things into a good context, which is last year was record earnings for the company and it was record trading earnings. And so we had a strong result this year in trading, but it was down a bit on a year-over-year basis. And then I mentioned specifically in upstream that we were lapping favorability in terms of mark-to-market favorable gain in 2022.

Operator:

The next question is from Neal Dingmann of Truist.

Darren Woods:

Yeah, well, thanks for the question. No, I would just tell you there's -- we're not going to run the business to appease an external member out there. I think the way we look at it is, can we find -- it comes back to every dollar that we choose to invest and spend. Do we see a return? Are we convinced that we're effectively spending that money and we're spending it efficiently? That's the criteria that we're using. That's the plans that we've built. We expect to grow our volumes in 2024 to about 650 Kbd. And then we're going to continue that growth through to the targets that we've laid out in 2027 of about a million barrels a day -- close to a million barrels a day. So that's the plan that we have. We're executing to that plan. And as we've said before, year-on-year, it's not straight ratable growth. It'll be lumpy growth. But over time, it'll average about 13%. And we haven't seen anything to date that would say that's going to change. Obviously as we bring Pioneer into the fold, we'll bring their production in and look to kind of optimize across that portfolio that both companies have. And as we've said before, that once we close on that, we'll come back out and have a spotlight where we share what the implications of bringing these two companies together and the impact on our Permian production.

Darren Woods:

You bet.

Lucas Herrmann:

Yeah, thanks very much. And [glad to have the opportunity] (ph) to talk with you. Following on from the Permian question, actually, Darren, when you were asked about the pace of growth in 2024 in the Permian, I think the time of the capital budget release, one of the comments you made was a desire to build drilled uncompleted wells. I just wondered whether you could talk a little bit around the concept of building inventory, why the need, why put more wells into inventory? Is it very simply adding flexibility to the business in order to maintain the production profile going forward? So what's the thinking? Thank you.

Lucas Herrmann:

Thank you. That's helpful.

Operator:

We have time for one more question. Our final question will be from Jeoffrey Lambujon from Tudor, Pickering and Company.

Darren Woods:

Yeah, sure. I think, and you rightly so pointed out the proprietary nature, so I will limit some of the details of what we're talking about there, but maybe just from a broader contact standpoint, we're convinced that carbon capture is going to play a really important role in helping society meet its ambitions to get to net zero or to make certainly significant reductions in carbon emissions. I think it makes a lot of sense to, rather than tear up and throw away the existing infrastructure and the industries that we have in place that are intensive energy users, that we find a way to deal with the problem, which is the emissions. So I think carbon capture plays a role there. The technology that we have today, frankly, wasn't developed for this application. It has a use and can be deployed today for high concentration streams. But as you move down the emissions profile and get to lower and lower concentrations of CO2 streams, the existing technology is challenged. And so it becomes very expensive for every ton of carbon that you reduce. And so the challenge is use the existing technology today for these high concentration streams where you can make the economics work, but then find a lower cost method to deploy for these less concentrated streams that still make it economic. So that's been the challenge that we're working on, recognizing that the existing technology was designed for a different purpose. We need a new technology here and we're trying to take advantage of material science development, things have happened with materials, with nanostructures. There's a lot of advances in technology since the existing technology was developed. And so there's a question of how can we better capture CO2 by using advances in the existing technology. We think we've come up with an opportunity to potentially do that, but it's early days like all these technology developments. And so we built a pilot plant and we'll see and test out some of these new capabilities and test the cost effectiveness of capture. I'd say our first step, we're looking to get about a cost reduction of about half. But I would tell you that's still not enough. But if we can see a significant step change in that cost or path to that cost reduction, that gives us hope that we can then continue to advance that and get it back -- get it down to something that is more competitive and then economic to deploy across the world. If we can crack that nut, as I've said many times before, the holy grail in addressing emissions is direct air capture. And the challenge for the industry is to find ways to do that more cost effectively. And frankly, we're at the very early stages of the technology and the technology development. So whether we're successful or somebody else is successful, I feel like this is an area worth exploring. And I think our technology companies have got some great ideas, know how to scale things, know how to optimize not only materials but processes and bringing all that together to see if we can't make a step change here is the objective. And it's too early to judge how successful we'll be, but I certainly feel like we've got the capabilities and should be working hard to try to make advances here.

Darren Woods:

You bet. Thank you.

Operator:

This concludes today's call. We thank everyone again for their participation.

Operator:

Good morning everyone and welcome to Exxon Mobil Corporation’s third quarter 2023 earnings webcast. Today’s call is being recorded. I’ll now turn it over to Ms. Jennifer Driscoll. Please proceed, ma’am.

Darren Woods:

Good morning. Thanks for joining us today. We delivered another robust quarter of earnings, cash flow and shareholder returns, reflecting our ongoing efforts to structurally improve our company and drive sustained industry-leading performance. We reported $9.1 billion of earnings, an increase of $1.2 billion compared to last quarter. While the market provided a bit of tailwind, our success was enabled by the continued strength of our operational performance, which reflects the hard work of our people across the company. Whether it’s continuing to drive efficiency in maintenance and turnarounds, running at high throughputs and utilization rates, or delivering big projects at first quintile cost and schedule, the excellent work of our people underpins our results and sustains our drive to deliver industry-leading performance in everything we do. The work is fundamentally strengthening the underlying earnings power of the company, establishing a strong foundation to deliver industry-leading results in any price environment. Consistent with our capital allocation strategy, we continue to share the success of the company with our shareholders. This morning, we were pleased to announce a 4% increase to the quarterly dividend to $0.95 per share. This year is our 41st consecutive year of annual dividend increases, a record that we’re proud of and that we know our investors value highly. We continue to strengthen our portfolio of businesses by investing in advantaged high return opportunities while divesting businesses that are no longer a strategic fit. During the quarter, we closed on the sale of our Thailand refinery, bringing our year-to-date cash proceeds from asset sales to more than $3 billion. We followed this in October with the close of the refinery sale in Italy. Recently announced acquisitions are great examples of the and equation, meeting the world’s needs for energy and essential products and reducing emissions. Acquiring Denbury strengthens our position to economically reduce emissions in hard-to-decarbonize industries, which today have limited practical options. We see the potential to drive strong returns with the capacity to reduce the nation’s carbon emissions by 100 million tons per year - that’s 20 times our current CO2 off-take agreements with CF Industries, Linde and Nucor, which by themselves could reduce CO2 emissions by an amount equivalent to replacing two million cars with EVs, roughly the same number of electric vehicles currently on U.S. roads. We expect to close the transaction in early November with Denbury shareholders scheduled to vote next week. Earlier this month, we signed an agreement to acquire Pioneer Natural Resources in another all-stock transaction. This combination will further strengthen our already advantaged upstream portfolio and create significant value for the shareholders of both companies. Together, we will recover more resource more efficiently and with a lower environmental impact. We plan to accelerate Pioneer’s Permian net zero ambition by 15 years and fully leverage their advances in water recycling. This deal is a win any way you look at it - good for our shareholders, good for the environment, good for the economy, and good for U.S. energy security. Neil will say more about the benefits of the transaction in a few moments. We’re also continuing to drive profitable growth organically. In energy products, we achieved the highest third quarter refinery throughput on record, driven by our Beaumont refinery expansion. At a time of strong demand and low inventories, this project is providing 250,000 barrels per day of much needed new capacity to the market. In addition, we recently started up our Baytown chemical expansion, which grows volume and improves mix. It provides 750,000 tons per year of new performance chemical capacity, including 350,000 tons of linear alpha olefins, marking our entry into this growing market. We delivered another quarter of strong operational and financial performance with earnings of $9.1 billion and cash flow from operations of $16 billion. These results reflect the structural earnings improvements we’ve delivered over the past several years as we’ve improved our mix of assets and driven significant structural cost reductions, while maintaining our focus on industry-leading safety and reliability. We have lowered our structural costs by $9 billion since 2019, meeting our plan, and expect to deliver additional savings in the fourth quarter. We continue to identify opportunities to improve our base operations, including enhancing our maintenance and turnaround processes, strengthening our digital capabilities, and optimizing our supply chain. Our year-to-date production of 3.7 million oil-equivalent barrels per day is on track with our full year guidance. Capex investments of $18.6 billion year-to-date are on plan. We expect 2023 capex to finish the year at the top end of our guidance range as we continue to invest in high return advantaged projects, our top priority for creating long term shareholder value. As always, we remain focused on sharing the company’s success with our shareholders. We delivered $8.1 billion in shareholder distributions in the third quarter, $3.7 billion in dividends, and $4.4 billion in share repurchases. With that, I’ll turn it over to Neil.

Jennifer Driscoll:

Thank you Neil. We have two quick announcements to share with you. First, please mark your calendars for our annual corporate plan update scheduled for Wednesday, December 6 at 9:00 am Central time. [Indiscernible] and Kathy are going to provide formal remarks and take live questions from our sell-side analysts [indiscernible]. Second, please keep an eye out for our 2024 Advancing Climate Solutions report. We expect to publish it online in mid-December. With that, we’re going to begin our Q&A session. Please note we continue to ask analysts to limit yourselves to one question as a courtesy to others; however, please remain on the line in case we need any clarifications. Operator, please bring us the first caller.

Neil Mehta:

Good morning and thanks for the update. The first question for me is on the Permian here. Slides 17 to 19 are interesting and incremental. I was wondering if you could take a moment to walk us through it. Just in the context of the investor feedback we’ve gotten around the transaction, folks are looking for a little more clarity on the top line synergies that are going to come from better productivity. Thank you.

Neil Mehta:

Thank you Neil.

Bob Brackett:

Good morning. When you talk about your two million barrel a day initial sort of view of where production from the combined entity can get to in 2027, how do I think about the gating factor? Is that a fixed rig or activity or capex program and the volume is an outcome, or is that a volume target and you’ll adjust activity down as more synergies come through?

Bob Brackett:

Very clear, thank you.

Devin McDermott:

Great, good morning. Thanks for taking my question. I wanted to stick with upstream and take advantage of having you on the call here, Neil, and ask about Guyana. The slide noted that production is now coming in ahead of plan for the full year, a little bit better than your full year target, and part of that is the Payara start-up, part of that seems to be debottlenecking. I want to just focus on the debottlenecking opportunity. Could you walk us through how much uplift you’ve realized so far versus nameplate, how much is left, and then the repeatability of this outperformance as we look at the additional FPSOs that are set to start up over the next few years.

Darren Woods:

Yes, I would add to Neil’s comment, if you recall, we brought all our projects organization together to make sure that we were leveraging the best capability in terms of development in designing these projects. We’ve also brought together our technology organizations, and the big benefit we have there is we’re now leveraging not only the capacity that was in the upstream in terms of optimization around these facilities, but we’ve decades and decades of experience of people optimizing and running our chemical plants and our refinery facilities to squeeze out and optimize every piece of the production pipeline and make sure that we are at the designed limits of the different equipment. That optimization, which has been kind of the lifeblood of the refining business, given the very narrow margins, has big payoffs when we apply it to the upstream facilities, and so there’s an additional benefit just in terms of leveraging the broader organizational capability, which again has been part of our strategy from the very beginning, is to make sure that we’re bringing to bear the best thinking across the corporation on the most important facilities and projects, and this is certainly one of those.

Operator:

The next question is from Doug Leggate with Bank of America. Your line is open, please go ahead.

Neil Chapman:

Yes, thanks Doug. There’s probably two parts to that question. One is exploration and then one is production and capacity. Let me just handle exploration first. You know, we’ve had, as you’re aware, three discoveries this year, including Lancetfish-2, which is the most recent one. We continue to integrate those results, both of exploration and appraisal drilling, and we’re going to update that resource base when we see it is a significant change. Our program of exploration and appraisal continues, and the way I like to frame it is in the southeast corner of the Stabroek Block, we’re continuing to appraise around our discoveries, and that will take a lot of work and a lot of activity. You know we have six drill ships in the basin and they’re both--they’re in development appraisal and exploration drilling. In addition to all that appraisal drilling that we’re doing in the southeast part of the block, we’re looking for what I would describe as anchor prospects further to the north and further to the west. We continue to look and we’ve probably got order of magnitude three, what I’d call true wildcats or exploration targets, looking for [indiscernible] wells in the next 10 to 12 months, something like that. That can change based on results of either the appraisal or the exploration drilling. You know, we’re going to update when we see something meaningful and when we see something significant. We’ve been very clear that we had six FPSOs in the pipeline - they are firm and I just in one of the previous questions outlined all of those. Indeed, they will have a capacity and you strive to keep them full all the time. As you know, Doug, one of the beauties about the Stabroek Block is the density of the resource and the proximity of these boats, which gives that potential for tie-backs well into the future. But the water cut will increase, as everybody knows, in deepwater, so we constantly look. We like to talk about capacity and we optimize as we go, and we will increase the production versus the nameplate capacity as we go, and so that’s why I think what we can be firm on is we will have six boats by the end of 2027, they will have a nameplate capacity of 1.2, and obviously we will strive to keep them as full of liquids or of oil as we can over that period. I think as we get closer to 2027, obviously we will update those numbers, Doug.

Neil Chapman:

Yes, sure. Thanks.

Stephen Richardson:

Great, thank you. We’re going to keep Neil busy this morning. Another one on the Pioneer disclosure - appreciate the incrementals. Neil, I guess it sounds like from your previous comments, the million barrels a day target, that output is still there from the legacy composition and you’re thinking about the additive from Pioneer. Can you talk a little bit about as you integrate the two assets, are you assuming some high grading around some of the higher quality acreage? Do you envision prioritizing more activity on one asset versus the other, or are you still kind of thinking about them as two separates? Also, maybe you can just talk a little bit about assumptions around acreage bolt-ons or any positions as well. Is there a lot of work to do in terms of extending some of this lateral length that you’re talking about? Thanks very much.

Darren Woods:

I’d just add to what Neil said, if you look at what we’ve been doing over the last six years, it’s really been around integrating our organizations, consolidating them, and making sure that we’re concentrating like capabilities into the same organization, and that is paying huge dividends. This is no different. The intent is to fully integrate the Pioneer organization and its people into our business. My expectation is we’ll bring a lot of advantages to their acreage, but at the same time, we expect their people to bring a lot of advantages to other parts of our business, including what we’re doing in the Delaware. Our whole strategy is really around the value you create by taking experts in areas and getting the collaboration and the innovation that comes from that, so there won’t be a separate approach here. It will be one. I think what you’re seeing today, to Neil’s point, the fact that we’re in very early stage, but as we get together and work through the plans and the development, it will be one seamless integrated organization and plan.

Stephen Richardson:

Thanks very much.

Roger Read :

Yes, thanks. Good morning. Keeping with the upstream theme here, I’d like to dig into the, I guess call it a slight transition here, the high value-added or high margin liquid barrels, so specifically the comment, 100,000 barrels a day higher versus 2022’s gases declined or been sold, and the liquids have grown. But as you think about the change out to 2027, the growth in Guyana, the growth in the Permian, and we compare that to where you were, say in 2019, how do you think about the total value-added liquid barrels, the impact on margins, the impact on returns? What’s the right way for us to think about the transition of the company over roughly that eight-year period?

Darren Woods:

I’d just add to that, Roger, if you just step back and think more conceptually around the strategy and what we’re trying to do, every one of our businesses is focused on moving to the left-hand side of the cost of supply curve, so that we remain robust to any period in the commodity cycle and making sure that we’re positioned competitively versus everyone else in the industry. That drive over time to reshape the portfolio continues to move our collective production to the left and to lower cost, and then at the same time adding higher value barrels, we’re lowering cost and increasing revenue, and so that’s where the value game is getting played out. That’s the work that we’ve been doing and that’s the high grading that you’ve seen in the portfolio and the improvements in structural cost. We mentioned at the top of the meeting that we’ve actually achieved the $9 billion in structural cost this quarter, third quarter, so a quarter ahead of what our initial plans were, and we expect to see more in the fourth quarter. As we go forward with the changes that we’ve been making in the organization continuing, we’re going to continue to deliver more structural cost savings. The whole strategy is around making sure that we have the best portfolio and the most resilient portfolio, so that we can basically be successful irrespective of the commodity price environment that we’re in, and that we’re well positioned versus others in the industry. That is the strategy, and you see that playing out certainly in the upstream, but you also seeing it playing out in the downstream where we’ve been high grading our assets there and playing out in our chemical business, where we continue to bring on units that produce high performance products. That strategy is manifesting itself in each of our businesses. Then I’ll just end on that same philosophy underpins what we’re doing in low carbon solution. As we build out that business and position ourselves for the long term, it’s making sure that every investment that we’re making, every value chain that we’re creating, that Dan and his team have a clear view about where that will sit in the cost supply curve, or you can think of it as the cost of abatement curve, and making sure that we’re going to be advantaged versus the rest of the industry.

Operator:

The next question is from John Royall of JP Morgan. Your line is open, please go ahead.

Kathryn Mikells:

I would say nothing really unusual going on in capex. As you stated, it was a pretty tight range to start with, obviously with a focus on us looking to ensure that we’re investing in advantaged high return projects - that’s exactly what we’re delivering, so I would characterize this as updated guidance that’s pretty consistent with our plans, and we can give you a further update when we get to that corporate plan discussion later on in December, but we feel very good about our overall execution. As Darren mentioned earlier, we’re bringing projects online at a cost and schedule that’s typically within the top quintile, so we feel really good about our capabilities and our execution and our ongoing focus with our highest priority, ensuring that we’re executing great projects with high returns for our shareholders.

John Royall:

Very helpful, thank you.

Jason Gabelman:

Yes, good morning. Thanks for taking my question. A lot’s happened in the past few months, but about three months ago, there was a handful of news articles about Exxon’s lithium endeavors. I just wanted to get an update on that. Are you still drilling in the Smackover for lithium, are you exploring potential processing unit there, and how have things trended the past few months? Do you expect that to figure into your growth plans here over the next five years? Thanks.

Jason Gabelman:

Great, that’s really helpful. Thanks.

Ryan Todd:

Thanks. Maybe one follow-up on some of the earlier Permian conversation. You were always known as developing your side of the Permian on a very long term plan. You’d built out a lot of infrastructure early on. On the infrastructure side, as you think about this post the Pioneer transaction on infrastructure, do you have the combined infrastructure in place that you need to arrive at the 2 million barrels a day of combined production? Will this require any additional infrastructure spend or any shift around in how you think about things versus previously anticipated, and maybe just any comments on whether you see any potential bottlenecks in the basin over the next few years.

Darren Woods:

Yes, I would add to that, if you go back in time, as we were looking at the integrated value chain, we were certainly focused on the molecules that we were producing in the Permian but we also recognized it was an opportunity for us to take advantage of the geographic locale and the proximity to our facilities in the Gulf Coast to optimize broader Permian production, and so we built the logistics systems, pipeline systems and the capability within our facilities to manage that. What we’re now going to be bringing into the portfolio in the Midland fits very well with this broader play of an integrated value chain and making sure that we’re maximizing the value of those molecules through our own facilities. As we said early on when we first introduced this deal, that piece of the equation, which we believe there is a value opportunity on in terms of better managing the molecules from end to end, from the crude clear through to the finished products, we believe there’s additional opportunity there. We’ve got to get in and work through the details of that. My view is that’s additional upside to what we’ve been talking about. It’s one I feel really good about and the one that, frankly, we anticipated early on by making sure that we’d built the capacity ahead of actually needing it for our own molecules, so we’re in a very good position there.

Ryan Todd:

Thank you.

Neal Dingmann:

Good morning, thanks for the time. Darren, maybe for you or Kathy, my question is on shareholder return. It looks like you paid out a bit over 100% of free cash flow following the prior quarter - I think you were closer to even higher than that, maybe about 118%. I’m just wondering, when you think about shareholder return, will you continue to lean into the buybacks as you look in the out years, or maybe just if you could give a little bit of color. I think I understand your role, your thoughts on the dividend side, so maybe I’m asking a bit more on the share buybacks going forward. Thank you.

Neal Dingmann:

Thank you Kathy.

Paul Cheng:

Thank you, good morning. Neil, the industry in the Permian, whether it’s for emission reasons or for cost efficiency, seems to move and trying to electrify the operation as much as we could, can you share with us where is Exxon in that journey? How far are you in terms of electrifying your operation in the Permian, and when you’re comparing to Pioneer, I don’t know whether you have the information that you can share, and whether you guys are ahead of them or that this will be part of the $2 billion of synergy benefit, or that you’re going to do more aggressively on that, this is going to be on top. Thank you.

Darren Woods:

Yes, I would add to that, I think Scott and the team at Pioneer have been--this has been an area of focus for them, and I know they have worked hard to drive those down. The advantage that we bring is we’ve got a large organization, more resources. We’ve got a technical organization that has been leaning into this space and working broadly with the industry and other organizations to develop the technology to better manage methane. Neil talked about the central organization that we’ve put in place to kind of monitor everything that’s happening out in the unconventional space and make sure that we’re responding in real time to things that we’re seeing through this centralized operating center. Bringing the Pioneer portfolio into that center and then allowing us to apply a lot of the work that, frankly, our scale and size has allowed us to advance, I think is going to make a big improvement in what we’re doing with Pioneer, just by bringing additional capability there. I think the culture and the mindset is already in place. We’re now going to bring some additional resources in to apply, and so my expectation is that we’re going to see--we’re going to raise the game here, just because we’re bringing some additional capabilities to support what was already, I think, a very important focus for the Pioneer organization.

Neil Chapman:

Yes, in terms of the synergy benefits, as you know and we’ve talked about many, many times, it’s not just about the cost of the rig, it’s about the quality of the rig and the performance of the rig, but electrification of those rigs doesn’t really impact that. The electrification of all of those facilities is built into our plans going forward.

Paul Cheng:

Thank you.

Josh Silverstein:

Thanks, good morning everyone. On the Pioneer acquisition call, you had mentioned that the inventory of the combined companies in the Permian was around 15, 20 years. Was just curious how that may be split between the Pioneer asset and your Delaware asset, and does it contemplate the accelerated growth rate improves the outlying longer laterals or a potential plateau? I’m just curious to get some more details there, because there was a view of Pioneer having over 20 years of inventory, so any more details there would be helpful. Thanks.

Josh Silverstein:

Well, maybe if there was just any more details as far as what your split may be of that 16 versus what theirs may be.

Darren Woods:

For the resource.

Josh Silverstein:

Okay, that’s it.

Sam Margolin:

Good morning, thanks for taking the question at the end. I wanted to follow up on the capital allocation question and the dividend increase specifically. We’ve talked a lot about this in the past, that this dividend increase looks like it’s roughly the same as the amount of the share repurchase in terms of percentage, and I know you’re issuing share for Pioneer but you’ve also got a pathway to a lot of upstream growth and then downstream is growing too, as we learned about in the product solutions spotlight. You’re running with sort of a significant operational cash surplus on a recurring basis, even before this growth, and so just wondering about your thoughts on dividend growth going forward and if we are through this period where you were tending the balance sheet and the portfolio, and now some of this growth will translate to sort of a dividend CAGR that is in line with the operations. Thanks.

Darren Woods:

Yes, I would just add to that, Sam, obviously we view the dividend as a commitment, and as we saw through the pandemic, even when things get tough, we work hard to make sure that we’re continuing to deliver on that commitment to our shareholders. As we think about going forward and the volatility in the markets and the commodity cycle, we do need to make sure that as we think about growth in the dividend, that we also think about sustainability and the ability to deliver on that commitment, irrespective of what the market throws at us. That goes into the equation as we think about that going forward, and when we’ve got additional cash that we want to distribute, we’ve always got the buyback, which obviously as Kathy said, we’re looking to have a more consistent level of that as well. That’s kind of how we’re thinking about it. Thanks for the question.

Jennifer Driscoll:

You’re welcome, and thanks everyone for joining the call and for your questions today. We will post a transcript of our Q&A session on the investor website next week. We look forward to connecting with you again on December 6 for our corporate plan update. With that, have a nice weekend, everyone, and I’ll turn it back to the Operator to conclude our call.

Operator:

Good day, everyone, and welcome to this Exxon Mobil Corporation Second Quarter 2023 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to the Vice President of Investor Relations, Mrs. Jennifer Driscoll. Please go ahead, ma'am.

Darren Woods:

Good morning. Thanks for joining us today. I'm pleased to be conducting our earnings call from our Houston campus. As of July 1st, our corporate headquarters is now located at the campus, alongside the senior managers of our businesses and centralized organizations. This is the first time in the company’s history that the senior leadership team of the corporation is located on one site and represents a critical step in continuing the transformation of our business enabling us to improve collaboration and alignment and further leverage synergies across our integrated businesses. The ongoing efforts to structurally improve our company and drive sustained, industry-leading performance was clearly demonstrated in our second-quarter results. We delivered earnings of almost $8 billion, two times higher than what we earned in the second quarter of 2018, under comparable industry commodity prices. That doubling of earnings reflects our work in the intervening years to reshape our portfolio of businesses, invest in advantaged projects, and drive a higher level of efficiency and effectiveness in everything we do. With these results, I would like to take a moment to recognize our people. Starting with all those that made the move to Houston. I’m sure you know moves like this are not easy and that many personal sacrifices are made. I’m very thankful for all who did this. Their willingness to disrupt their lives for the benefit of our company is a testament to the dedication of our people whose commitment and hard work underpin all the improvements we are making. I hope our shareholders take comfort in this one, small example of our people’s commitment to the company and have confidence in their resolve to further strengthen our position as an industry leader in all that we do. Our achievements this quarter also demonstrate the progress we’re making in solving the “and” equation

Operator:

Thank you, Mrs. Driscoll. The question-and-answer session will be conducted electronically. [Operator Instructions] And we'll go first to Doug Leggate with Bank of America.

Darren Woods:

It goes up, Doug, in short. I think as you know, and we've been talking about the reorganizations that we've been executing over the years with some of them just recently executed, puts us in a position to really capture a lot of efficiencies across the whole of the enterprise this year as we develop our corporate plans. Obviously, one of the objectives of these new organizations is to take stock of what they've got in their portfolio and identify the opportunities to further capture the benefits of scale and the synergies that exist between the integrated business and what for the first time represents an opportunity to actually manage processes across these integrated businesses. So I think we've got an opportunity set to drive that cost reduction even further as we head out further in the planned horizon. And my expectation is, when we come back at the end of the year after we've developed the plans, reviewed them with the board and then share them with all of you, we'll provide some perspective on what that opportunity looks like going forward.

Kathy Mikells:

Doug, I tell you to go back to the Investor Day materials from March of 2022. We had some bridges in it where we kind of laid out earnings and how much structural cost savings we're driving, earnings improvement relative to volume and mix. And I think if you just look at the size of those bars, you'll get a rough order of magnitude.

Darren Woods:

You bet. Thank you, Doug.

Neil Mehta:

Good morning. Darren, you've been clear that you think that there's value to be had potentially in M&A in both low carbon and the Permian and Denbury really well into the former of those two. I'd be curious on your perspective on whether on the M&A markets right now and how are you thinking about approaching opportunistic value creation to that?

Neil Mehta:

Thanks, Darren.

Operator:

We'll go next to Devin McDermott with Morgan Stanley.

Darren Woods:

Good morning.

Darren Woods:

Yes, sure. Al, I guess maybe start by going back to the approach we outlined 2018-2019 timeframe where we said ExxonMobil can bring a different game to the unconventional space and really bring to bear and leverage the capabilities that we have versus many others who are competing in that space. And key amongst those was taking advantage of our scale and balance sheet to develop this asset at scale. And so, you may recall, we talked about the cube development, which was really focusing on how you maximize overall recovery and not near term production. That wasn't a particularly well received approach back in 2018-2019 timeframe, but I think with time, it's demonstrated its value and it's actually manifesting itself in the results that you see today, which is, we're focused on making sure that as we develop the resources and all the benches in that resources, particularly the ones that are connected, that we do that in an optimum way, that develops and maximizes the recovery versus initial production rates. And so that's really important. That cube development, we continue to evolve that. I think we've gotten to a stage now where we feel really good about how we're executing that development. We focused on capital efficiency. And I would tell you today, we are setting records for the length of our lateral wells, which, again, lowers the cost associated with accessing the resource. And importantly, as you drill longer wells, it's critical that the productivity of each foot of that well remains constant. And so, we've done a lot of work to make sure that the productivity of each foot is consistent as we drill longer and longer. So that's driving capital costs down pretty significantly. And then I would say, we've got a lot of technologies that we're trialing, ones that I won't go into specific detail on to try to match some eyes recovery. And we've got those technologies deployed in the field. We've got some early results that are quite encouraging, but they aren't at the scale today to manifest themselves completely in our results. So, I think all those things together continue to give us a lot of confidence that not only have we moved to the front of the pack and demonstrated industry leadership with what we've got today that we see a lot of upside to that as we move forward and I don't think we've reached the end of the optimization process yet.

Darren Woods:

You bet.

Sam Margolin:

Good morning. Thank you.

Sam Margolin:

This question is about EOR. Hopefully, you don't find it too far afield. But because you are [Technical Difficulty]

Operator:

Okay. We'll go next to John Royall with JPMorgan.

Kathy Mikells:

Yes. I wouldn't say there's anything unique. I mean, this is a straight flow through of just what the industry refining margin reduction is kind of flowing through. We would see a much bigger reduction coming out of where we have a bigger footprint. So I would say even though the US tends to have better margins than the rest of the world, we obviously have a very big footprint in the US. And so, just that footprint drives a bigger absolute number and absolute decline, but it's just a straight flow through from the change in industry margins.

John Royall:

Sure. I was just looking at it's kind of like a 50% cut to the 1Q number on the margin side. But yes, thank you very much. I appreciate it.

Roger Read:

Yes, hello. Good morning.

Kathy Mikells:

Good morning.

Darren Woods:

Yes, sure. I'll give you a couple of perspectives on that and then see if Kathy has anything to add. I think, first of all, what I'd say is, the work that we've done over the years to make sure that we've got a well-diversified feed slate for our chemicals business continues to pay off, particularly in these markets as things are shifting around and price spreads are moving. Our organization is pretty adopted responding to those price signals and change in feed. So that continues to make its way to the bottom line and position us better than many of our peers with that flexibility and the feed optionality that we have. I think as you look around the world, early on there was -- with China being in a COVID lockdown and recognizing the role that it has in chemicals demand. That was kind of the back half of last year. And the impact and as we've come into this year, I think a lot of expectations for China to pick up and with that growth in demand in chemicals we are seeing that starting to happen. In fact, if you look at the -- ourselves in chemicals, the second quarter was stronger than the first quarter. So we are seeing that. The demand looks pretty reasonable, I would say. I mean, the big -- that challenge and you've referenced it is the amount of supply that's come on. And that's where I think our feedstock advantages and our footprint in the integration that we have with a number of refineries around the world actually positions us better. But it'll take some time is my expectation for demand to kind of take us out of the supply, the excess supply that we've got on the marketplace, but I would just add that, we've made a lot of investment in chemicals over the last five years, fairly significant investments. And one of the things that frankly I'm quite pleased with is, if you look at all those chemical investments that we brought online, even in the depths of what is a pretty low bottom of cycle condition for our chemical business, all of those brand new projects are earnings positive and cash positive, which I think really bodes well for when the market comes back up and we're at top of cycle. So, I feel good about how we position the business and, frankly, we're doing exactly what we had hoped for, which is, when you get into tough conditions that our business continues to outperform competition. And so it puts us in a good position as markets tighten back up again and margins improve we will be in an even better position.

Roger Read:

Great. Thank you. Follow-up question on the carbon capture side of the business. If we look, we’ve got global coal demand hitting a record in 2023, global oil demand is going to hit a record in 2023, if it hasn't already. Just curious, Darren, is there -- when you were -- you've already laid out your strategy, all that makes sense. The Denbury acquisition certainly fits well in that. Just curious if you're getting any additional sort of outside pressure to maybe accelerate something on this, given that, if you think about it from an energy transition standpoint, two or three years ago, everybody was saying we would have already had peak demand for this, peak demand for that, clearly not happening. If we're going to have a lot more carbon emissions, are you getting any additional pressure to accelerate carbon capture?

Roger Read:

Great. Thank you.

Sam Margolin:

Hello. Is that is that better, sound wise?

Sam Margolin:

I'm okay. So this question is about EOR as it pertains to Denbury. I think, there's some optimism that EOR barrels might be credited with carbon attributes because it varies more CO2 than the associated emissions of the oil. And so, maybe that's option value, but I was just wondering where you stand on that topic and if it was at all a factor as you look at different asset classes and saw that EOR was available?

Sam Margolin:

Understood. Thank you so much.

Operator:

We'll go next to Stephen Richardson with Evercore ISI.

Darren Woods:

Yes, sure. And thanks for the questions. That's something that frankly the organization has spent decades kind of working. I'll start by just -- I bucket it in three distinct buckets. First, it starts with the design and build out of the project itself. And so, having a projects organization with the capability that we've built and strengthened here over the last several years, we end up with facilities that have the right design and are built the right way so that we've got a really good platform to optimize and a good opportunity to squeeze to find opportunities to maximize and optimize the production coming out of the facilities without compromising any of the design specifications, staying well within safe operating envelopes. And we've done that over the years in a lot of our facilities. And I think this project organization even extends that capability with the skills that they bring to the project development and the build out. And then I'd say the second bucket is our operations organization and the focus that they put on maximizing utilization and production. And I think the mindset in the company is, once you've got steel on the ground, you've got this capital. The operations job is to run it reliably, run it safely, run it in an environmentally responsible way, but at the same time maximize the value of that steel in the ground and they've done a tremendous job of that. And it's not one big thing. It's a lot of little things that that organization stays focused on and pushes. And again, we've seen that not only in Guyana, but really all the capital projects that we've been bringing on the organization done a great job of making sure that we're maximizing the value of the capital that we've invested. And then the third bucket I would say is our technology organization. And again, we've taken the step to consolidate all of our technology organizations and move from what was a business oriented construct to a capabilities construct. And so, we've got our best people brought together working on our biggest opportunities. It's really driving innovation and creativity. And this close partnership that technology now has with the business and the shared commitment to drive value leads to more technology getting out in the field and assisting the operations group and squeezing. So I'd say all those are coming together. My expectation is, as I mentioned in my prepared remarks that, we're going to see the first two FPSOs get above 400,000 barrels a day as we continue to optimize and we'll do that in a very safe and environmentally responsible way. My expectation is when the third boat comes on with [indiscernible], we'll see similar levels of improvement there. And frankly, the expectation that we have for ourselves is that, as we build -- go forward and continue to build these projects, we'll continue to find the same kind of benefits and optimization opportunities with the projects and it comes back to this inherent capability that we built into our businesses.

Darren Woods:

You bet.

Kathy Mikells:

Good morning, Ryan.

Darren Woods:

I'll let Kathy maybe dive into a little more detail. I would just say, with respect to pricing and the impact on the business, actually our quarter came in pretty much in line with what we had expected. If you looked at the 8-K that we put out and our best attempt to model the impact. Just from the market environment, we are pretty rigorous in making sure that when we put an 8-K out there, it's really focused on discrete planned events, but much more importantly on what the market impact has been to the business quarter-on-quarter. And so I think that kind of laid out pretty consistently with what we expected. Obviously, gas prices were down, but I think refining margins are down a bit but still in very healthy territory. And if you look at the fundamentals, quite frankly, as we head into the back half of the year, I think as demand picks up, we're going to see limits that we have on additional supply, I think, come back into the mix and see the supply/demand tighten up a bit. So, my expectation is, the back half of the year, we'll see some an upward pressure just given demand changes in the limited options we have to significantly increase supply. Kathy, anything to add to that?

Ryan Todd:

Great. Thank you.

Jason Gabelman:

Hi. Good morning. I wanted to ask about another energy transition area that's been receiving some attention in the media in terms of Exxon's activity, which is, lithium drilling and then refining. And it seems like you're waiting a bit more into the space. I'm wondering how you view that opportunity, given your expertise in drilling and refining of materials in the ground. And if that development in that space was contemplated at all in that $17 billion energy transition budget that you previously laid out? Thanks.

Jason Gabelman:

Great. That’s really helpful color. Thanks.

Operator:

We'll go next to Josh Silverstein with UBS.

Kathy Mikells:

Sure. And so, we're pretty happy with our overall balance sheet position right now. And I've stated for a couple of quarters now that we expect our cash balance is going to ebb and flow a little bit just based on how the commodity price environment and margin environment ebbs and flows. So we think it's pretty critical to hang on to a really strong balance sheet because it gives us the flexibility that we need through the cycle. If you look overall at what we're doing from an investment perspective, I would say we're never trying to constrain the organization in terms of deploying good capital investments. And that's across our entire business. It includes our LCS business. Obviously, the acquisition of Denbury will enable us to accelerate the growth of our carbon capture and sequestration business within LCS. And we're excited about that opportunity and profitably growing that part of our business. So I think it's really important when we talk about capital deployment that we are not trying to constrain the company from new capital projects that can drive good returns for our shareholders. And that's how we create, I'd say, the virtuous cycle of how we can then support competitive growing dividends that are sustainable over the long term and a more consistent share repurchase program. So I'd say we're really happy with our balance sheet. We intend to hang on to a higher cash balance than the company has done historically just to give us more flexibility as we think about how we manage the company over the long term and through the cycles.

Josh Silverstein:

Great. Thanks guys.

Neal Dingmann:

Good morning. Thanks for the time. My question is on OFS costs, just your thoughts, both domestically and internationally for the remainder of the year and into 2024, how you're thinking about either inflation or deflation?

Neal Dingmann:

Very helpful. Thank you.

Paul Cheng:

Thank you. Good morning, guys.

Paul Cheng:

Thank you. You [indiscernible] to spend $17 billion in the low carbon business through 2027. Denbury sale acquisition is about 30%. And you're also saying that you're seeing a lot more opportunities. So should we interpret that your $17 billion that number, we'll need to -- will increase perhaps quite substantially?

Kathy Mikells:

Yes. Just the other thing I want to mention is, especially as it relates to the CCS business, what you're going to see over time is that, we're building a backlog. And that backlog is what's going to support the future growing CapEx kind of over the longer term and the profitable growth of that business. So today, I would describe ExxonMobil's backlog is 5 million tons annually, supported by three very large industrial customers, one in the industrial gas sector, one in the steel sector, one that makes ammonia that's used for fertilizer, right? And if you just think about what that does for society, those 5 million tons annually, that translates into the conversion of about 2 million cars from gas-powered vehicles to electric vehicles. That's about all the cars around the road in the United States today. And when we talk about the overall CCS opportunity across the Gulf Coast, we talk about 100 million tons annually. That's 20 times that number. But I'm going to go back to the fact that it will be supported by customer backlog that supports a growing profitable business. So that's how you should think about it.

Kathy Mikells:

Of course.

Kathy Mikells:

620 koebd.

Darren Woods:

You bet, Paul.

Paul Sankey:

Hi. Good morning, everyone. Just a follow-up, actually, just looking at your volumes upstream. First of all, you mentioned that there was turnarounds and stuff, but I wondered if you could talk about the recovery, especially in the light of the stronger Guyana volumes, the fact that your upstream volumes are down quite hard here. Is that going to be a rapid recovery in Q3 and back towards what kind of levels should we expect for the rest of the year? Thanks.

Paul Sankey:

Can you say more about the downtimes that you had in Q2?

Paul Sankey :

That's super helpful. And then if I just follow up, if I look at your energy product sales, those are up just about as much, if not more, positively. Obviously, that's mostly Beaumont, I guess. But is there anything else to add there to the strength?

Paul Sankey:

Great. I’ll leave it there. Thank you very much.

Jennifer Driscoll:

Thanks, everybody, for your questions today. We will post a transcript of our Q&A session on our Investors section of our website as soon as it's available early next week. Before we conclude, I have one important announcement to share with you. Please mark your calendars for the ExxonMobil Product Solutions Spotlight. It's going to be on Wednesday, September 20 at 1:00 Central Time. Jack Williams, Senior Vice President, who oversees Product Solutions will be joined by Karen McGee, President of Product Solutions and several other leaders from ExxonMobil to talk about this new group formed in April 2022. For additional information about this upcoming event, watch the Investors section of our website. With that, have a nice weekend, everyone, and I'll turn it back to the operator to close it off.

Operator:

Good day, everyone, and welcome to this Exxon Mobil Corporation First Quarter 2023 Earnings Call. Today's call is being recorded. And at this time, I'd like to turn the call over to the Vice President of Investor Relations, Mrs. Jennifer Driscoll. Please go ahead, ma'am.

Darren Woods:

Good morning. Thanks for joining us today. Following a record year, ExxonMobil delivered the highest first quarter earnings in our history even as energy prices and refining margins moderated from the fourth quarter. This ongoing success reflects the hard work of our people, executing our strategic priorities and fully leveraging our competitive advantages. Through investments in advantaged assets, mix improvements and cost and operating discipline, we are delivering the structural earnings improvements outlined in our corporate plan update last December and expanding the energy supplies needed to meet growing global demand. Compared to the first quarter of 2022, we added about 300,000 oil-equivalent barrels per day to global supply, primarily from a 40% increase in production from Guyana in the Permian Basin, increase more than offset our divestments in the expropriation of Sakhalin-1, which we no longer account for, but which importantly remains part of global supply. In addition, our Beaumont refinery expansion reached nameplate capacity in the quarter. This 250,000 barrel a day expansion is the largest US refinery addition in a decade, helping meet society's ongoing need for transportation fuels. Guyana, we're pleased to announce that we reached final investment decisions for Uaru, fifth offshore project, which will bring on even more production from this low-cost, low-carbon intensity resource. Uaru will provide an additional 250,000 barrels a day of gross capacity with start-up targeted for 2026. Earnings in our Product Solutions business benefited from the team's solid operational execution with top quartile turnaround cost and schedule performance during a particularly heavy planned maintenance period. Low Carbon Solutions, we're building momentum across several fronts. In early April, we announced a long-term agreement with Linde to capture, transport and permanently store up to 2.2 million metric tons CO2 annually. Hydrogen, we announced front-end engineering and design contract for the world's largest low carbon hydrogen facility in Baytown, ahead of agreement with SK Group of Korea for offtake of blue ammonia from that facility. As we said during our Low Carbon Solutions spotlight earlier this month, our low carbon projects must be advantaged and deliver competitive returns. The ability of our low-carbon projects to compete successfully for capital is important if the world is going to meet its emissions aspirations. Incentives included in the Inflation Reduction Act are a positive step forward, although permitting and other regulatory improvements are still needed. Europe, by contrast, policy approach remains far more prescriptive and punitive. This is true whether we're talking about the emissions reductions needed to put the world on a path to net-zero or the production needed to provide Europe with affordable and reliable energy. The progress we're making across the company is underpinned by the continuing evolution of our business model. Effective on May 1, two new enterprise-wide organizations will be up and running. Global Business Solutions will centralize the majority of our finance procurement operations, enabling us to deliver simplified corporate-wide processes. ExxonMobil Supply Chain will consolidate supply chain activities globally. The organizations will focus on leveraging our scale to drive efficiencies, improve operating and financial results and, importantly, deliver an improved experience for customers, vendors and our people. On June 1, we plan to launch our new enterprise-wide trading organization. Global Trading will bring together expertise from across the company in crude, products, natural gas, power and marine freight trading, plan to build on our record 2022 results, leveraging the unique insights we gain from participating across each of our value chains and all along their entire length, with a global operating footprint larger than any of our competitors. Now, let me cover the quarter's headlines. We're pleased to have delivered $11.4 billion of earnings, a record first quarter following a record year. A significant contributing factor was structural cost savings that now total approximately $7.2 billion, keeps us on track to meet our target of $9 billion by the end of this year. Cash flow from operations totaled $16.3 billion, and our net debt-to-capital ratio declined to 4%, further increasing the strength of our balance sheet, while supporting shareholder distributions of $8.1 billion in the quarter, including $3.7 billion in dividends. Biodynamic market, our underlying performance remains rock solid and well ahead of our competition, reflecting the many improvements we've made over the last six years and, of course, the hard work of our people. Our diverse portfolio of advantaged businesses, improvements in mix, structural cost savings, excellence in execution are driving industry-leading earnings, cash flow and shareholder value. Combined with the strength of our balance sheet, we have the capability to win across a wide variety of market conditions to deliver strong returns, while meeting the evolving needs of society, including the need to reduce emissions. Leveraging the capabilities and advantages developed in our traditional businesses, we're building an advantaged new business, Low Carbon Solutions, which is positioning us as a leader in the energy transition, in our own and other's emissions and establishing long-term value-accretive growth opportunities that will underpin continued growth in shareholder returns. With that, let me turn the call over to Jennifer.

Operator:

Thank you, Mrs. Driscoll. Thank you question-and-answer session will be conducted electronically. [Operator Instructions] We'll go first to Neil Mehta with Goldman Sachs.

Darren Woods:

Yes. Good morning Neil. A couple of points, I think as we're looking at the refining margin. Obviously, the first I would make is we don't really pride ourselves on being able to forecast margins. So, our caveat, everything I say with the recognition that given the impact that demand has on the margins, given the fairly static supply side of the equation, it's often difficult to know exactly where things are going to go. What I would say is as you look at where we're at today, I mean, this is seasonally a low point as you head into second quarter and third quarter and driving season when you tend to see supply and demand tighten up and margins improve, you typically see early in the year a lot of refining turnarounds, which take a lot of capacity off-line in that lower demand season. And then when those turnarounds are finished and capacity comes back out, you get a surge of supply. And so you generally see refining margins drop off here in kind of this valley between the supply coming back and then demand picking up as you head into early summer and on to the year. So, I think we're in -- that's important context in terms of what we're seeing right now. Gasoline demand looks pretty reasonable, frankly. I think jet demand and transportation looks like it's kind of trending up and certainly from listening to some of our customers in that space, expectations of a fairly healthy air transportation or airline travel miles going forward in the summer. So, I think in my view is we're going to see the typical push up in the summer and see margins rise longer term. So, it comes back to what happens in China. It has been a source of not only demand but also of exports. There, exports have been higher in the first quarter, but it depends to see how those play out going forward. If we see similar levels of exports as we saw last year, my expectation is that will put additional upward pressure on the margin. So, I think that's kind of the things to watch. The last point I'd make on refining margins, which I think is somewhat structural, typically, the marginal barrel in refining comes out of Europe. And so then Europe set -- is the price setter for global markets ex-transportation. We've got high gas prices in Europe with, I think, the potential to go higher. You've got high carbon prices in Europe. And so that marginal tier of production is a lot more expensive than it's been historically. And that's going to keep, I think, pressure on higher prices for the globe and therefore better margins if you're producing outside of Europe.

Darren Woods:

You bet.

Doug Leggate:

Thank you. Good morning, everyone.

Doug Leggate:

Darren, I wonder if I could kick off first on disposals, another reasonable contribution from non-core asset sales. Can you characterize where you are in that process and what you think you might have still in front of you in terms of non-core asset sales. And I've got a quick follow-up, please.

Doug Leggate:

I appreciate the answer. I think I couldn't remember if Jennifer said one question or one plus one follow-up. So I'll risk a follow-up very quickly. I'll delicately ask this question, if I may. Obviously, Kathy was on the wires this morning talking about how picky Exxon would be on M&A. I just want to ask you if you feel that you need to backfill your Permian position at any time in the future. And I'll leave you there. Thank you.

Doug Leggate:

Thank you.

Operator:

And we'll go next to Devin McDermott with Morgan Stanley.

Darren Woods:

Good morning.

Darren Woods:

Yeah, good morning. I would say we haven't changed our year-end targets, and so the guidance that we gave as part of the corporate plan discussion last year continues to hold. I think we've said in the past that as you look at production in the Permian, it's going to be a little bit lumpy. And so I wouldn't take any one data point, any one quarter's numbers and extrapolate from there. I think you're going to see moving that up and down. I would say, generally speaking, we like what we're seeing in terms of productivity in the Permian. You all know we -- several years ago, our strategy on maximizing oil recovery versus initial production rates that led to a very different development approach trying to work across this cube design, work across all the benches simultaneously to maximize ultimate recovery. That, I think we've been developing that approach, fine tuning it, testing it and evolving that concept. We like where we've gotten to with that approach. I think we're seeing the results of that starting to manifest itself. Our expectation is that we'll continue to, I think, differentiate our production and what we're able to do versus many of the others -- many of our other competitors who started off on this best bench, high initial production rates. With time, I expect to see them pivot maybe a similar approach, but I think we've got a real good head start on that. Like what we're doing there. I think we see some encouraging signs on the early stages of that. And we're going to keep pressing on that, maintain rigs and the capital levels that we've been talking about pretty consistently, and then we'll see how the rest of the year plays out. But we're sticking at this point to same year-end guidance that we gave late last year.

Darren Woods:

Welcome.

John Royall:

Hi, guys. Good morning. Thanks for taking the question.

John Royall:

So on the Beaumont expansion, can you talk about how the capacity is being absorbed in the market? And given what's happened to cracks and the general concerns around demand today and granted, I think, Darren's commentary on the market was probably a bit more positive, but are there any concerns about adding capacity at a time where fundamentals appear to be weakening?

John Royall:

Thank you.

Operator:

We'll go next to Sam Margolin with Wolfe Research.

Darren Woods:

Good morning, Sam.

Kathy Mikells:

Sure. I'll go ahead and take that, Sam. I mean, our capital allocation approach, I think, has been very consistent and very clear. And we had talked about the fact that we would expect our cash balance post the end of the year to kind of ebb and flow depending on how market prices and margins evolve. So I'd say we're very comfortable with where we stand. It's important for us to have a really strong balance sheet in order to ensure that we stick to our capital allocation priorities through the cycle, right? That's investing in the business and competitively advantaged high-return projects. It's maintaining a very strong balance sheet. You know that balance sheet gives us all the firepower and confidence we need to succeed across a very wide variety of market conditions, which is obviously what this industry faces. And then clearly, we're looking to share our success with shareholders, and you see that through a more consistent share repurchase program and a growing dividend. So, we feel pretty good about our cash balance. I would just also mention that we're in a relatively unusual market environment compared to what we've seen in the past. ExxonMobil's average debt rate is about 3%. You can look up what people are earning on short-term cash. I think three-month treasuries are at 5% today. So, right now, we're not incurring a negative cost of carry on that cash balance, and that's certainly one of the things that we look at as well. So, we feel really good about where we're at today in our balance sheet.

Sam Margolin:

Thank you so much.

Operator:

We'll go next to Roger Read with Wells Fargo.

Darren Woods:

Good morning Roger.

Kathy Mikells:

I'll try and circle around that kind of suite of questions for you, Roger. So, I'd start by saying, overall, we feel really good about the progress that we've made. We're very much on track for the $9 billion at the end of this year relative to 2019. If you look overall at where a number of, I'd say, different programs are driving savings for us, one is just improving the overall productivity across our workforce. If you think about how that's manifested itself in Upstream, it's been a significant reduction in what I would describe as above-field cost that's been a real focus of that organization. We've made a number of different organizational changes over the past couple of years, I would describe those generally as looking to centralize kind of key functions across the company that have been done disparately. Previously, our global projects organization would be a great example of that. Last year, more recently, the combination of our Upstream -- I'm sorry, our Downstream and Chem organization into our Product Solutions business, a lot of simplification coming across that business as a result, combining our engineering and research kind of groups collectively together and then just recently announcing the combination of our supply chain across the organization and setting up a global business services organization and combining our global trading capabilities across the company. And so that's all about improving the experience for our employees, for our vendors, for our customers and continuing to drive efficiencies and importantly, effectiveness across those organizations. We would have seen actually the benefit of some of that in this recent quarter. We talked a little bit in our presentation about the fact that our maintenance activities, we had a pretty heavy turnaround quarter, and those maintenance activities really came in at the first quartile. So much better than what we had planned for, shorter duration. That enabled us obviously to have better throughput than we would have been planning overall for the quarter. And so that's a big area of savings for us. And that's another organization that we have recently centralized in our global operations and sustainability group. So that gives you, I'd say, a little bit of a characterization of where savings are coming from. And certainly, some of the more recent changes that we've made in the organization, we'd expect to drive efficiencies and effectiveness going forward from here. And then just the last comment, like does the program end. So just to be clear, we've talked about a specific time period externally because we thought that would be helpful in transparency. Internally, we don't actually manage this as, hey, there's onetime period that we're focused on as opposed to we are focused on continuing to drive structural cost savings over time. Those are embedded in the plans that we shared with you last December. And obviously, we'll be doing an update when we come to the end of the year. And so we'll talk in more detail about what we see from there on a go-forward basis.

Kathy Mikells:

And then I'll just circle back. You asked a little bit about inflation. We actually have put an additional disclosure in our press release, so I'd encourage you to look at that. If you look at the quarter, we more than offset inflationary cost pressure with the structural savings that we were able to generate. Overall, I'd say, the organization is doing a good job at looking to offset inflation in what's obviously been a higher inflation environment recently.

Kathy Mikells:

Welcome.

Jason Gabelman:

Hey, good morning. Thanks for taking my question. I wanted to ask a question on the Downstream business and given your global reach there, we're seeing reports that Asian refiners are contemplating run cuts while margins in the US are still really robust. And I'm wondering if you see that dynamic has kind of balanced where cracks in Asia are zero but margins in the US are still 20, and that's kind of representative of the market structure that we're in, or do you expect the weakness in Asia margins to force US refining margins lower in the near-term? Thanks.

Jason Gabelman:

All right. Thanks.

Operator:

We'll go next to Stephen Richardson with Evercore ISI.

Darren Woods:

Yeah, I'll start and then I'll hand it over to Kathy to build on, but I would just say, generally, as we think about the dividend, we try to keep the long-term in mind and also be extremely conscious of the commodity cycles and the variability and the volatility that we see in the marketplace and making sure that we establish a level of dividends that are reliable, sustainable, and I'd like to see those grow with time. That's been our history. That's what you've seen us do. And you see us fight certainly during the pandemic year fight really hard to make sure that we sustain that. And that's, I think, a commitment that I feel really strong about. And so it's really about making sure that what we do there is sustainable for the long-term. And then obviously, we can balance disbursement -- shareholder disbursements with buybacks. But I think maintaining a long-term perspective and making sure our shareholders feel rewarded through the dividend policy is an underlying principle. Kathy, do you want to add anything to that?

Stephen Richardson:

Thank you, very much.

Operator:

We'll go next to Ryan Todd with Piper Sandler.

Darren Woods:

Sure. I'll start then and then, Kathy, if you got anything to add to it. I think, these -- like all the businesses that we're in, the underlying drivers of the chemical margins tend to be the commodity chemicals that are driven by supply/demand and the balances or imbalances in supply/demand. The margin, we saw a lot of capacity come on. You remember, as we went through the pandemic, a lot of investments got stalled and pulled back. And then as we came out, those got turned back on again and have come on to the marketplace. We've seen a lot of capacity coming on. I expect we'll still see some of that come on here in the short term. And then in conjunction with that, the COVID impacts took a while for it to unwind through, what I'd say, is the global economy, which impacted chemical demand. As you know, it's very tied to economic activity. So if economic activity is constrained, then chemical demand is constrained. And we certainly saw that with the China lockdowns. Where we're at now is, that capacity is out there and on and it's just a question of where demand goes. And frankly, I think it's early with China. We do see some promising signs, but we'll have to see how that -- China demand and their economic activity picks up. The other point I would make is, feed and feed optimization is a big part of the margin equation as well. We've got some fairly diverse assets with respect to the ability to manage feed and change feedstocks around. As gas prices came off, that gave us a better liquid to gas spread that allowed us to change some of our feed into our crackers and get the advantage of that. So that was a help in the first quarter, some of that feed optimization. And that will play into it as well. And I think that's what you saw in the first quarter. And then the more macro impacts, we'll see how they play out as we go forward. Kathy, anything?

Darren Woods:

Yes. It's a great example of where we're focused on, advantaged projects that bring on advantaged low-cost capacity. So, that polypropylene unit that we brought on in really what is a pretty low point in the polypropylene market to make earnings, positive earnings on a brand-new piece of kit that starts up in the lowest of the cycle is, I think, a testament to the strength of the projects that we are investing in and bringing online.

Darren Woods:

Thank you.

Operator:

We'll go next to Alastair Syme with Citi.

Kathy Mikells:

Sure. I'm happy to answer that. What you tend to see in depreciation is some ebbs and flows associated with our asset management activities. And so when we're selling assets, sometimes we're taking a small impairment that runs through depreciation. And so I'd say you kind of have to take a step back from that noise in depreciation. If I put that to the side, the company has run about, I'll call it, $19 billion, $20 billion annually in depreciation and amortization. So, that's how I think about it.

Operator:

We'll go next to Biraj Borkhataria with RBC.

Darren Woods:

Sure. And good morning Biraj, thanks for the question. I think putting aside the press reports of the media, we've talked about this, I think, starting back in 2018. And what triggered our emphasis on China trade and the emphasis that we're putting on trade is the reorganization that we made coming out of the functional organizational construct into value chains. And as you move in the value chains, the opportunity to trade along that value chain and generate insights and advantage along with value chain changes pretty dramatically. And so that move to a value chain construct that we had early on between Refining and Downstream that -- we now have that with our Product Solutions organization. We've now integrated our Upstream into those value chains. And so we've got a really streamlined and good view of the marketplace. And so we can now trade all along the entire length of the value chain, we can trade across those value chains. And then obviously, we can take advantage of the global footprint as you referenced and trade along that global footprint and arbitrage between the markets. And so I think our organizational construct today gives us a much better line of sight and opportunity to optimize in the trading space. So we started growing that in 2018. That has been what I would say is on a continuum of growth. We like what we see there. We like -- we brought talent in there. We've had -- we've traded for a long time. We just gave the trading organizations within the company some different objective statements, and they've done really well responding to that, bringing value to the bottom line. And what we just announced is taking the trading organizations that today are somewhat dispersed through the organization and consolidating those into one centralized trading organization for the whole of the corporation. We think that makes a lot of sense. We did a lot of work over the last couple of years to validate what we thought the opportunity size was there and what would be needed to get after that. And we're now, I'd say, in execution mode with respect to putting the organization together, putting in the support systems, bringing in the talent, developing the talent and growing the talent in that space. And so I would just think of it as a progression, a continuation with what we believe is a huge opportunity. And we're going to do that in a very thoughtful, controlled pace but one that is very focused on significantly growing the value proposition there, really around our footprint. This is not about going out and taking speculative positions. This is about going out and optimizing, given the asset base that we have, the value chains that we're participating in. taking the insights generated from running those businesses and the opportunities that come with those insights and transacting on them. That's what the organization is going to be doing. And like I said, even in the short time, we've seen some really good results. I think we've got a clear line of sight to some additional ones. And that -- the value of that opportunity will manifest itself in our business that the -- this is really around trading on the value created through the transformation of molecules and developing products that people want and then moving those products around the world. And so that platform gives our traders a great base to optimize off of. That's where we'll see the value accrue.

Kathy Mikells:

So we obviously take the company's working capital needs into consideration as we think about our balance sheet and our cash balance, all else held equal, a bigger company means a bigger working capital needs. So that's how I would think about it. I'd also say, as it relates to trading generally, I mean, there's some near-term, I would say, working capital that has to be brought in mind in terms of the trading organization. The profits that come through trading are different quarter-to-quarter, but I'd say year-to-year, pretty steady.

Darren Woods:

Thank you.

Paul Cheng:

Thank you. Good morning. Darren, can you give us an…

Paul Cheng:

Thank you. Can you give us an update where you are on in Mozambique and also in the Papua New Guinea LNG, in terms of the Papua New Guinea expansion talk?

Paul Cheng:

Darren, can I ask -- in Mozambique, Total seems to be optimistic about the security on the ground there, just working through on the cost structure with the contractor. And do you guys still have concern on security, or that you are going through the similar process to turn on the cost structure side?

Paul Cheng:

Thank you.

Jennifer Driscoll:

Okay. I think that, that completes our Q. So thank you, everybody, for your questions today. We will post a transcript of our Q&A session on our new investor website in a few days. Additionally, we look forward to connecting again on May 31st for our Annual Shareholders' Meeting. Have a nice weekend, everyone. And now let me turn it back to the operator to conclude our call.

Operator:

Good day everyone and welcome to this ExxonMobil Corporation Fourth Quarter 2022 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Vice President of Investor Relations, Ms. Jennifer Driscoll. Please go ahead, ma'am.

Darren Woods:

Thanks Jennifer. Good morning and thanks for joining us today. Before covering our 2022 results, I want to start by recognizing our people. Their hard work and commitment, not only to the company, but to meeting the critical needs of society, are what drove the strong results we reported this morning. Their work is not easy, whether it’s achieving industry-leading safety, driving record levels of environmental performance, increasing production, offsetting run-away inflation, effectively responding to expropriations, or quickly recovering from winter storms, to name just a few of the challenges, our people delivered while, I’ll add, continuing to manage significant, ongoing organizational changes. As I cover our results, I think you’ll see why we, and the entire management team are so proud of their efforts. Of course, our results clearly benefited from a favorable market but, to take full advantage of the undersupplied market, our work began years ago, well before the pandemic when we chose to invest counter-cyclically. We leaned in when others leaned out, bucking conventional wisdom. We continued with these investments through the pandemic and into today. This year, our improved asset portfolio, organizational changes, and strong operating performance came together to deliver industry-leading results; industry-leading earnings, cash flows, return on capital employed, and total shareholder returns. Excluding asset sales, we had our best cash flow performance since the merger. And, despite lower revenues, we delivered higher profits than 2012, our previous record year with a 400-basis point improvement in profit margin, reflecting upgrades to our product mix, structural cost reductions, and disciplined expense management. 2022 was also a year of strong progress across our five strategic priorities. Importantly, we’ve continued to strengthen our industry-leading portfolio and increased production from high-return, advantaged assets in Guyana and the Permian at a time when the world needed it most. We implemented a series of organizational changes to further leverage our scale and integration, improve effectiveness, and better serve our customers. We combined our downstream and chemical companies to form Product Solutions, the world’s largest fuels, chemicals, and lubricants business. This new integrated business is focused on developing high value products, improving portfolio value, and leading in sustainability. We’re also now supporting our businesses with corporate-wide organizations including projects, technology, engineering, operations, safety, and sustainability. We see further opportunities in supply chain, procurement, and finance. We continued to expand our Low Carbon Solutions business, recently signing the first-of-its kind customer contract to capture and permanently store up to 2 million metric tons per year of CO2. This agreement, in a hard-to-decarbonize sector, highlights how ExxonMobil can leverage our advantages to help others reduce their emissions and build an attractive business with strong returns and significant opportunities for growth. The recent passage of the US Inflation Reduction Act, which incentivizes both hydrogen and carbon capture and storage, further reinforces this. To that end, in December, we shared our plans to invest approximately $17 billion in lower-emission opportunities from 2022 through 2027, up from $15 billion in our prior plan. We also made significant progress reducing greenhouse gas emissions in our existing operations and remain on track with our 2030 emissions reduction plans, including net-zero Scope 1 and 2 emissions for our unconventional operations in the Permian Basin by 2030. In addition to investing in industry advantaged projects, we took advantage of the strong markets to further high grade our asset portfolio with approximately $5 billion in divestments of non-core assets. CapEx was in line with our guidance. To further increase transparency, in 2022, we introduced three new reports; The Lobbying Report, which provides additional disclosure of our lobbying activities and expenditures; The Climate Lobbying Report, which provides details on our US activities at the federal and state level; and our Investing in People supplement, an addition to our updated Sustainability Report. Lastly, as I mentioned, the hard work of our people underpinned our success this past year, as it has done for decades. We build on this advantage every year by attracting and developing the best talent. This past year, we were once again recognized as top in industry for most attractive employer among US engineering students, an honor we’ve received 10 years in a row. Our 2022 financial results, which led the industry, further confirmed the strength of the strategy we developed five years ago. We grew earnings to nearly $56 billion -- $59 billion excluding identified items; significantly outpacing peers. We delivered an industry-leading total shareholder return of 87% and a return on capital employed of 25%, our highest one-year ROCE since 2012. Cash flow from operating activities was nearly $77 billion, also leading the industry. This enabled us to reduce net debt to 5%, fortifying the balance sheet and positioning us to continue our strategy of counter cyclically investing. Our continued focus on leveraging scale and integration drove further efficiencies with nearly $6.9 billion in structural cost savings versus 2019, up from $5.3 billion at the end of 2021. We remain on plan to meet our target of $9 billion in structural cost reductions by the end of 2023. Consistent with our capital-allocation strategy, we continue to share our success with shareholders through a reliable and growing dividend. In 2022, we boosted the quarterly dividend by more than 3% and marked the 40th consecutive annual increase. Additionally, we increased our share repurchase program twice during the year. In total, we returned $30 billion to shareholders in 2022, including about $15 billion in dividends, which also led peers. These actions reflect the confidence we have in our strategy, the performance we’ve seen across our businesses, and the strength of our company’s future. We’re proud of our people and their work to meet the evolving needs of society. As we advance our strategy and the and equation, we’re committed to sharing their progress. Consistent with this, we continue to enhance our disclosures and increase transparency. In December, we updated several important online publications. Our latest Sustainability Report describes the 14 focus areas where we believe our company can have the most impact. The Advancing Climate Solutions 2023 Progress Report outlines our approach to help reduce greenhouse gas emissions in support of a net-zero future. It includes updated resiliency modeling under the IEA Net Zero Emissions by 2050 Scenario, including the addition of carbon and pricing assumptions, and an audit statement from Wood Mackenzie. In addition, it includes a discussion on the value of a life-cycle approach to measuring company specific emissions vs. Scope 3 targets. We believe a life-cycle approach for companies is more aligned with the principles of ESG, better reflects a company’s efforts to reduce society’s emissions, and avoids the negative consequences of a company-specific Scope 3 target. The update also contains more information on how we’re driving reductions in methane emissions. And finally, it includes a look at the role of plastics in the energy transition, and how we’re expanding our capacity for advanced recycling to help address the issue of plastic waste. Separately, we’ve updated our outlook for energy, which is our latest view of energy supply and demand through 2050. It forms the basis for our business planning. In addition to assessing trends in economic development, technology advances, and consumer behavior, our outlook seeks to identify potential impacts of climate-related government policies, which often target specific sectors. We encourage you to read these publications to gain a better understanding of how we’re working to be a leader in the energy transition. They’re available on our website under the Sustainability tab. Our plan for 2023 remains anchored in our existing strategy and builds on our continuing success. I’ll wrap up by highlighting a few key areas. Critically, we’ll continue our efforts to lead the industry in safety, operating, and financial performance. We’ll continue to profitably grow the business through advantaged investments to meet the world’s evolving needs and reduce emissions. We’ll further leverage our new organization to fully realize our advantages in scale and integration and improve competitiveness. We expect to deliver another $2 billion in structural cost reductions, meeting our target of $9 billion in savings versus 2019. We’ll look to capture additional organizational synergies by consolidating our supply chain activities and centralizing a majority of our finance and procurement operations. This will help us take better advantage of our scale and greatly improve our customer, vendor, and employee experience. We anticipate 2023 capital and exploration expenses of $23 billion to $25 billion. This includes investments in the next development in Guyana, and increased spending in US unconventional assets. It also includes advancing our China chemical complex and numerous emission reduction opportunities. We’ll advance our work to reduce greenhouse gas emissions intensity in our operated assets and help customers reduce theirs focusing on hard to decarbonize sectors. We’ll continue to progress our blue hydrogen project in Baytown, that consists of a billion cubic foot per day blue hydrogen plant, the world’s largest, and a CCS project with potential to store up to 10 million metric tons of CO2 per year. We’ll also leverage our recent success in Louisiana to grow the customer base for our Low Carbon Solutions business. As the energy system evolves, our focus on the fundamentals and investments in an integrated but diversified portfolio of advantaged businesses will play a crucial role in capturing value and outperforming competition irrespective of the pace or path of the transition. As you’ve seen, we remain committed to our capital allocation priorities

Operator:

Thank you, Ms. Driscoll. The question-and-answer session will be conducted electronically. [Operator Instructions] We'll go first to Jeanine Wai with -- I apologize. We’ll go first to Biraj Borkhataria with RBC.

Darren Woods:

Yes, good morning Biraj. Let me start with your last question and then move to the first. With respect to CapEx, if you look at the range we've given, I think we've indicated in the comments and I just -- the comments I just made that we'll be at the upper end of that range, which is consistent with a slight increase given the work that we're doing. But I would reiterate that the broader range that we've given over the years continues to fit well with our plans and is consistent with the pacing that we established when we came out of the pandemic. As I mentioned before, we had worked with our contractors to lay out a plan for how we continue to progress those investments. And I would tell you today with our projects organization feel really good about the progress we're making, the efficiencies that we're gaining with our CapEx. If you look at the pause that we had to take due to the pandemic, we basically offset any of those costs to maintain the same level of productivity of our spend going forwards. So, something real proud of the projects organization is doing. So, I would expect to continue to stay within that range. And if that changes, obviously, in the years to come, we'll update you as our plans develop and make sure you all stay aware of that. With respect to the inflation, I would say, from an operating expense standpoint, one point I'd make is if you look at what the organization did year-on-year, essentially, with all the synergies that we are capturing, some of the scale advantages and purchasing power we had, essentially, the businesses collectively came in on plants. We're able to offset the inflation that we were seeing from an expense standpoint, which was obviously no easy task. I think on the -- if you look at the different projects around the world, it really is a function of when we chose to engage the contractors and engage the equipment that we're using. I mean, if you look at the Permian, it's the short cycle and where there's a lot of activity. And so like other parts of our business, supply and demand gets tight and puts pressure on pricing, there's less of that supply/demand pressure in other parts of the business and so not seeing the same kind of pressure that we're seeing in the Permian, that tends to be the one area that's really, really hot. But I think in all those areas, we're using the size of the business that we have and the long-term plans that we have and long-term commitments that we can make with our contracting partners to make sure that we're keeping those in check and that our partners are playing the long game here with us. So, I think we've done a pretty good job of keeping capital productivity pretty high, feel pretty good about that. Kathy, anything you want to add?

Biraj Borkhataria:

Okay. Thank you for the color.

Operator:

We'll go next to Jeanine Wai with Barclays.

Darren Woods:

Good morning Jeanine.

Darren Woods:

Yes, I'll take that Jeanine. I think -- start with just the market in general and I think the driver behind the refining margins that we've seen here of late is driven by the pandemic impacts of shutting down capacity and then not having that capacity available as demand has recovered. So, the world remains pretty tight and it will stay I think tight, while we wait for additional refinery expansions to come online, primarily out in Asia and the Middle East. I think the Russia impact and the ban on products going into Europe could potentially have some short-term implications. At the end of the day that -- those products are going to be needed. So, it really is around logistics, I'll call it, disoptimization to where the market is pretty efficient and we've got the most efficient supply chains and logistics systems lined out. We're going to disrupt those and I think it's a question of how does that disruption manifest itself in the market and what kind of disconnects and discontinuities do you see in the short-term? And then ultimately, we'll read that -- the system will stabilize, reoptimize and I expect higher costs just because of your moving to a less optimum logistics approach, but more stable. I don't know -- that's -- that -- I see how that’s going to play out. So, I don't think there'll be a long-term impact, it'll be a short-term one and then there's just a question how long it takes for the systems to rebalance. I think more fundamental to refining is the shortness and with the economies picking up and with China coming out of its COVID lockdown and the economic growth there and then the view that you take on the economic impacts and how severe recessions are here this year, that's probably going to play a much bigger role. If demand picks up, economies continue to grow, we're going to see that tightness manifests itself and continued higher refining margins, which I think will mean a fairly high margins this year and potentially going into 2024 as well.

Darren Woods:

Sure.

Neil Mehta:

Yes. Thank you, Darren and Kathy. I wanted to spend some time on the Permian outlook for 2023, you made some comments in the prepared remarks about getting to over 600,000 barrels a day. So, I guess that's about 10% growth as we think about 2023. But just your thoughts on volumes and then ultimately, where should we think about plateau?

Neil Mehta:

Thanks Darren.

Devin McDermott:

Hey, good morning. Thanks for taking my question.

Devin McDermott:

So, I wanted to ask about the Chemicals business and if we look at the margin chart that you have in the slide deck, it's the one part of the portfolio where margins are still below the 10-year range. I was wondering if you could talk a little bit about the trends that you're seeing there as you move into early 2023 with China reopening and that potentially being a positive driver for margins. And then also just talk through some of the discrete growth projects we got coming on over the next few years to drive that that earnings growth you talked about at the Investor Day last year, I think Baytown, you noted later this year and get the China Chemicals Complex still a few years out, but some of the growth projects and the progress there as well?

Devin McDermott:

Great. Thank you.

Operator:

We'll go next to Doug Leggate with Bank of America.

Darren Woods:

Morning Doug.

Kathryn Mikells:

Sure. So, I'll first I'll first just talk about the financial impacts. In the current quarter, we wouldn't have had material impacts. Obviously, there were some countries in Europe that had passed incremental taxes earlier this year. So, I'll point to Italy and the UK, as an example. And so we would have been accruing those appropriately. You would have seen as part of our identified items that we booked $1.8 billion associated with 2022. Overall, increased additional European taxes. Now, in terms of the cash impact that doesn't really hit in 2022, we just took the we took the overall accrual and those payments will end up occurring both in 2023 and in 2024. It just depends on the individual countries. But if I take an overall step back and say we looked at what happened in the EU and said, it's not legal and it's the opposite of what is needed, right. So, what's needed right now is more supply and instead, what's been put in place is a penalty on the broad energy sector. So, I'll contrast that with what's happened more recently in the United States with the Inflation Reduction Act, right. There you see policy that's put out to incent industry, both to accelerate technology and decelerate investment, that's greatly needed, especially in areas where the industries in terms of lowering emissions are still pretty nascent, things like hydrogen and CCS, and you're already seeing investment start to flow into those industries.

Doug Leggate:

Appreciate your perspectives, guys. Thanks so much.

Alastair Syme:

Thanks very much Darren and Kathy. Darren could you just make some sort of high-level comments about the competitive landscape you see across the business? I know this is sort of a broad question, but upstream Energy Products, Low Carbon Solutions, how do you see competitors' behavior [ph]?

Alastair Syme:

Thanks very much.

Operator:

We'll go next to Stephen Richardson with Evercore ISI

Kathryn Mikells:

So, I would start by saying we view our balance sheet very much as a competitive advantage, right and we know that during the upper part of the cycle, we've got to build a fortress balance sheet, to make sure we have all the firepower we need, and all the flexibility we need to then manage the downturn, which will inevitably come. So, that's how we think about the balance sheet. I think we've made terrific progress. I mean, if you look overall, this year, we paid down about $7 billion of debt, you already mentioned that our net debt to cap is about 5%. We obviously also learned a number of lessons during the pandemic and we have said, we have a willingness to carry a higher cash balance. Our cash balance is around $30 billion right now. So, I'd say overall, at any given point in time, our cash balance is ultimately going to depend on how the market environment ensues. But we know having a really strong balance sheet is a competitive advantage for us. We've been very clear about our capital allocation priorities and at the very top of that priority list is making sure we're consistently investing in advantaged projects, right. We're in a quite good position in terms of having a very rich portfolio of advantage projects, which we're bringing forward. And I think we've taken a very balanced approach and ultimately how we're sharing our rewards with shareholders in 2022, we ended up distributing about $15 billion in dividends and $15 billion in a share repurchase program. So, ensuring that we just have sustainable growing competitive dividends and efficiently returning cash to shareholders. So, that's how we think about it. And we are at the part of the cycle where you would expect us to see a very strong balance sheet, and we're very focused on ensuring that that's indeed what we have.

Sam Margolin:

Good morning. Thanks for taking the question.

Sam Margolin:

I'll ask about M&A actually, because you're describing a number of advantages that are that are very unique to ExxonMobil, not just at a corporate level, but even in individual asset classes, for example, that you might be in the early stages of efficiency and productivity gains in the Permian, which is really different than a lot of other operators are saying. So, it seems like a opportunity to consolidate and create a lot of value, but at the same time, there's other countervailing forces against that. So, maybe at this point, it would be it'd be great to just hear your thoughts on the overall M&A landscape and what kind of opportunities you see? And then also in the context of Kathy's comments on the balance sheet, which is obviously set up very well right now. Thanks.

Kathryn Mikells:

The only other thing I would add is ultimately, we're focused on continuing to high-grade our portfolio overall. And you would have seen in the past year, in what's been a more buoyant market environment, you know that we've made a number of divestments where others saw more value in those assets than we saw. So, we're always looking at both sides of this equation. And depending on the market and what's available, and again, how we think about synergies, how we think about retention value, we'll look to transact, but only when we think it's going to earn good return for our shareholders.

Darren Woods:

Thank you.

Jason Gabelman:

Morning, thanks for taking my questions. The first one is for Kathy, just on a couple of items that I think impacted 4Q earnings. You had highlighted on the last earnings call that downstream trading benefits were particularly strong in 3Q and I was wondering if that continued into the fourth quarter? And you also highlighted in the 8-K for 4Q earnings that inventory impacts would be a headwind and that was hoping if you could quantify that as well? Thanks.

Jason Gabelman:

Got it. And then on the inventory, the year-end inventory impacts?

Jason Gabelman:

Got it. Thanks. And then my follow-up is just on downstream maintenance, which it seems like refining maintenance will be particularly high in 1Q. I wonder if that's just kind of a bunch of things getting -- just getting aggregated into one quarter, if it's going to be a higher year overall moving through the year, if there's something else going on. Just a little more color on that number and the outlook for the year would be great. Thanks.

Jason Gabelman:

Great. Thanks.

Ryan Todd:

Hey thanks. Maybe a higher-level question, following up on some of your comments earlier on competitive position. Relative to past cycles, the competitive environment in upstream oil looks far different than many times in the past with both fewer players in the industry and many of your largest peers strategically under-investing in oil. How does it -- how do you think this impacts global supply over time? And how does it impact your -- as you look forward, how does it impact your competitive position within the space? Does it open the door for additional opportunities for you? And in E&P projects, does it -- whether in terms of expiration leasehold, competition or project development or even within the asset transactions in the M&A space, have you seen an impact to-date? And how do you think that evolves in the coming years with the changed competitive landscape?

Ryan Todd:

Thanks Darren.

Operator:

We'll go next to John Royall with JPMorgan.

Darren Woods:

Yes, I'll take it. As I said before, if you look at Beaumont, when we -- the concept of that project was developed five-plus years ago. And it really was looking at what I would call the feedstocks and intermediate balances going into that refinery and the options that we had to optimize the logistics piece of the equation and justified that project purely on logistics optimizations and lower-cost transportation to feed that refinery. And that's kind of how we thought about that, so that is robust to wherever you're at within the cycle. If you layer on where we're at today in the commodity cycle and the fact that we are at on the very high end of refining margins, my expectation is that that refining expansion will do much, much better than what we -- the basis on which we appropriate it just because we find the timing of where we find ourselves in that cycle. And that's good news. I mean that's, I think, an important part of the investments that we make to make sure that we're kind of participating in all phases of the cycle. But I think even better news is we're not depending on that to generate a return from that investment. So, even as we move through the commodity cycle and at some point in the future, we find refining margins start to come off, and eventually, we'll find ourselves in the bottom of the refining commodity cycle. That expansion will position our Beaumont refinery very well and will, I think, continue to be incremental to the value of that refinery. So, feel really positive about that. We're making good progress. We mechanically completed that a little ahead of schedule, and we're making good progress on ramping that facility up.

John Royall:

Thank you.

Operator:

Looks like we have time for one more question. Our last question will be from Roger Read from Wells Fargo.

Darren Woods:

Yes, I think the point you made, we're making really good progress. As we've said, we brought Liza 2 in ahead of schedule. We anticipate bringing Payara in ahead of schedule. We brought Liza 2 up very well, brought that online quickly and began producing at above nameplate capacity in the fourth quarter. And so I feel really good about the quality of those projects and the operational ability to bring those up and run them effectively, making good progress there. We've got Yellowtail in for government approval. I expect that to be a bigger FPSO. So, we're making -- I would say we're at or ahead of the schedule and ahead of the expectations that we've talked about historically with Guyana. The resource base, as you know, continues to grow. We continue to make discoveries. We continue to really optimize around those discoveries. And that's a really big part of developing these projects is as we are in parallel to developing projects, continuing the exploration and then continuing to better quantify and qualify that resource base is making sure that our projects are optimized around that. So, there's a balance that we're striking around how best to optimize, and feel good about what we're doing there. And frankly, I think the government feels really good about what we're doing there. Importantly, the development of that resource and the value associated with that is manifesting itself in the country, which is a really important part of the equation here. We always said coming into this that this has to be a win-win-win proposition, needs to be a win for the company, it needs to be a win for the government of Guyana and it needs to be a win for the people of Guyana. And that's what we're seeing there, a lot of jobs, a lot of economic opportunity opening up in Guyana. We've just -- we've been working with the Guyanese government around a project to bring in gas power into the country, lower emissions and more reliable. We've got work going on to help bring up some of the other social services in the country. So, I think people are seeing the progress. And the fact that we're bringing this on sooner and at lower cost, I think, is a benefit to the government. They recognize the values coming faster than originally anticipated. So, it's a -- I think it's a good story of government, I think, and ExxonMobil, got very good relationships, working very constructively. And as I said, it's a win-win-win proposition here and feel good about the progress we're making.

Darren Woods:

I think as the team continues to drill and then quantify and characterize the results of those drills, when it gets to a material improvement, we'll be out talking about that.

Darren Woods:

Roger, thank you.

Operator:

This concludes today's call. We thank everyone again for their participation.

Operator:

Good day, everyone, and welcome to this Exxon Mobil Corporation Third Quarter 2022 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to Vice President of Investor Relations, Ms. Jennifer Driscoll. Please go ahead, ma'am.

Darren Woods:

Thanks, Jennifer. Good morning, everyone. Before covering our earnings highlights, I want to begin by recognizing the men and women of ExxonMobil. While this quarter's results were clearly helped by a favorable market, fact is we're in this position because of the hard work and commitment of our people over the past few years. Where others pulled back in the face of uncertainty and a historic slowdown, retreating and retrenching, this company moved forward, continuing to invest and build to help meet the demands we see today and position the company for long-term success in each of our businesses. We understand how important our role is in providing the energy and products the world needs. And while the market has clearly been a factor, results we report today reflect that deep commitment. I mentioned this because it is at the heart of our company and its culture. We know the role we play and are incredibly proud of it. We work together as a team, confident in our mission and determined to do our part in meeting the world's energy needs and leading the way in a thoughtful energy transition. Overall, I'm pleased with our third quarter operational and financial results. Higher natural gas realizations, strong refinery throughput, robust refining margins and rigorous cost control drove our earnings improvement. We continue to increase production to address the needs of consumers, which contributed to earnings and cash flow growth, a stronger balance sheet and significant value creation. Our results also reflected the outstanding work of our teams across the world who operate our facilities reliably at high utilization rates. Let me highlight a few examples of our progress. First, Energy Products. We boosted overall refinery throughput to its highest quarterly level since 2008, responding to tight market conditions. And we continue to make progress on the Beaumont refinery expansion, which will increase capacity by about 250,000 barrels per day in the first quarter of 2023. We also increased production from our high-return assets in the Permian and Guyana. Our production in the Permian Basin reached nearly 560,000 oil equivalent barrels per day, building on our strong growth from last year. We grew our production in Guyana to 360,000 barrels per day during the third quarter, with Liza Phase 1 and 2, both exceeding design capacity. We also had continued exploration success with 2 additional discoveries in the quarter. Earlier this month, first LNG production was achieved from Mozambique's Coral South floating LNG development, contributing new supply amid growing demand for LNG globally. We continue to expect total upstream production of 3.7 million oil equivalent barrels per day for the year. Looking longer term, we remain on track to grow low-cost production and meet our 2027 plan, with more than 90% of our Upstream investments, generating over 10% returns at $35 per barrel. Our ability to increase production while reducing cost, improves our competitive position, benefits consumers and generates capital to fund meaningful investments, demonstrated by one of our recent press releases, announcing that our low carbon solutions business signed its first and the largest of its kind customer contract to capture and store up to 2 million metric tons per year of CO2. This marks an important milestone in developing our newest business. It's also a good example of how we're supporting other companies in reducing their greenhouse gas emissions. We look forward to sharing more about our progress in developing attractive low-carbon solutions business in December as part of our corporate plan discussions. We continue to actively manage our portfolio, announcing the sale of our interest in the Aera oil production operations in California and our refinery in Billings, Montana. Proceeds from divestments completed year-to-date totaled $4 billion as we captured incremental value for these noncore assets in today's higher price environment. These sales enable us to concentrate on our higher-value advantaged assets. Finally, you may have heard earlier this month that with 2 decrees, the Russian government has unilaterally terminated ExxonMobil's interest in Sakhalin-1 and transferred the project to a Russian operator. In March, we stated our intention to exit the Sakhalin-1 project and discontinue our role as operator and took an impairment of approximately $3.4 billion at the time. While our affiliate was in force majeure due to the unprecedented impact of global sanctions, we continue to make every attempt to engage in good faith discussions with the Russian government and all Sakhalin-1 partners to effect a smooth exit to the benefit of all parties. Our priority all along has been to protect employees, the environment and the integrity of operations at the facility. While the recent decrees violate our rights in Russia established by our production sharing agreement and interrupted the exit process we were working, it did not prevent us from safely winding down our operations. We're proud of our employees and the many significant achievements they led since 1996, including the most recent challenge of the government takeover. We do not anticipate any new material costs associated with the exit. This next slide illustrates the variability the industry is experiencing across the markets most relevant to our business. In the third quarter, crude prices moved back within the upper end of the 10-year range as higher supply slightly exceeded demand. Natural gas prices rose to record levels in the third quarter, reflecting concerns in Europe about the withdrawal of Russian supply as well as efforts to build inventory ahead of winter. While natural gas prices recently moderated, they remain well above the 10-year historical range. In the U.S., prices increased by about 15%, driven by higher summer cooling demand and inventory concerns. Refining margins remained well above the 10-year range due to inflated diesel crack spreads, resulting from expensive natural gas and high demand for diesel. Higher refinery runs and flat demand for gasoline in the U.S. resulted in refining margins declining from the second quarter. In contrast, global chemical margins fell below the bottom of the 10-year range, reflecting weakening global demand. Margins in North America and Europe have softened, with regional pricing moving closer to global parity as demand and logistics constraints relaxed. Asia Pacific remained in bottom-of-cycle conditions as COVID restrictions continue to suppress demand in China. Despite these challenges, our chemical products business delivered another solid quarter on improved product mix, strong reliability and good cost control. Before leaving this chart, I want to make one other very important point, the value of a diversified portfolio. With just the 3 quarters shown, you can see how the value has shifted across our different businesses. Our diversified portfolio has served us well during the volatile swings in prices and margins across the various businesses. As the energy system evolves along an uncertain path, the investments in our broad portfolio of advantaged businesses, including our Low Carbon Solutions business will play an even more important role in capturing value in outperforming competition in the very near term, and across a much longer time horizon. Before I turn it over to Jennifer, let me recap our key takeaways on the quarter. We continue to progress our advantaged investments, drove additional structural efficiencies and created sustainable solutions that deliver the energy and products everyone needs. This has resulted in strong earnings growth, bolstered by higher refining throughput and cost control which more than offset margin declines. We've continued to strengthen our industry-leading portfolio and increased production from our high-return assets in Guyana and the Permian. In addition, earlier this month, our low carbon solutions business signed the largest-of-its-kind customer contract to capture and store up to 2 million metric tons per year of CO2. This is a strong indication of the growth opportunity we have in this new business. We've also continued to actively manage our portfolio, announcing the Aera Upstream and Billings refinery divestments and closing the sales of our Romanian Upstream affiliate and XTO Energy Canada. Our diversified portfolio of advantaged businesses and robust balance sheet provide a strong foundation to invest in value-accretive projects and drive attractive shareholder returns through the cycle. In aggregate, the work we are doing today is delivering critical products in a very short market. Longer term, we're delivering improvements that strengthen our structural advantages, meet society's growing needs for energy and modern products, reduce greenhouse gas emissions and double earnings and cash flow by 2027 versus 2019. In short, profitably leading our industry toward a net zero future. Thank you.

Operator:

[Operator Instructions]. We will take our first question from Devin McDermott with Morgan Stanley.

Kathryn Mikells:

Sure. Why don't I take the first question and maybe give you the macro. So if you look overall at our energy products business, obviously, it was a really strong quarter. That was really, from our perspective, led by the volume increases we saw. So we had record North American throughput. We had across the globe, the best results on throughput that we had seen since in 2008. And so if you look at the earnings bridge in terms of what happened quarter-to-quarter, that was worth almost $1 billion kind of improvement as a big driver in the results for energy products. If you then look at what's going on in margins, obviously, margins softened in the quarter. They still remain well above what the 10-year average would be. If we look at those softer margins, they were really driven by downward pressure in gasoline margins due to lower-than-usual summer demand, specifically in the U.S. Diesel demand is continuing to be strong. We then had some offsets to that pressure that we saw on margin. And specifically, if you look at some of the positive offsets we saw, we saw some favorable timing-driven impacts. We try to separate this, so you can kind of see it, separate it. Part of that was just mark-to-market on our open derivative portfolio, that was worth about $250 million favorable impact in the quarter. Other price timing impacts were worth about $600 million favorable impact in the quarter. That was really driven by derivatives that we use to ensure ratable pricing of refinery crude runs. So if you put that to the side, we delivered about $5 billion in earnings outside of those price timing benefits in the quarter. And in addition to the other offsets for softening refining margins, we saw very strong aromatics margins. We did a good job on revenue management, so we saw positive benefits there. And then overall, I would say, end-to-end, supply chain optimization, right, both through procurement and logistics and trading benefits on top of that. That's really embedded in the base business. And so we expect to see benefits out of those areas. They're not always ratable every quarter. But if you look over time, those benefits clearly accrue to the business.

Operator:

We will take our next question from Jeanine Wai with Barclays.

Kathryn Mikells:

Sure. So first of all, I'd say our capital allocation priorities continue to be consistent and we're executing well against that. We've got to continue to make sure we're investing in the business. It's a long-cycle business and that consistency is really critical. We look for accretive acquisition opportunities. We're pretty disciplined in that area. And you've obviously seen us more recently looking to execute a number of divestitures in what's been a pretty good market for that activity. We are really focused on ensuring that we've got a fortress balance sheet that gives us all the firepower and flexibility that we need to operate through the cycles and be really prepared for the next downturn. And then we're also really focused on ensuring that we're sharing our success with shareholders. We're trying to get that balance right. You obviously referenced the fact that we increased our quarterly dividend by $0.03, so that will be reflected in the fourth quarter dividend coming up here shortly. We're in the process of executing a $30 billion -- up to $30 billion share repurchase program through 2023. We are on track to get $15 billion of that program done by the end of the year. We did about $10.5 billion in share repurchases through the third quarter. And if you look across the year, that would put us at $15 billion in dividends and about $15 billion in share repurchases. So I'd say both a pretty balanced return to our shareholders. And I think that puts us pretty well ahead of peers in terms of returning excess cash to shareholders. So we are mindful of our cash balance. We ended the quarter at about $30 billion. It is possible that our cash balance is going to float up a little bit from there depending on what the market environment continues to look like. And we will continue conversations with our Board about the share repurchase program. But right now, we're just continuing to execute our plan.

Doug Leggate:

Darren, I wonder if I could just ask you to opine on a kind of big picture issue. You, I think, and a number of your peers met recently with the administration relating to a number of things. I mean I think the only folks are probably not happy with your results this morning might be -- well be the administration. Can you share any thoughts you had about some of the risks presented by legislators around things like export bans on products, things of that nature, not least given how strong your Downstream profitability was this morning?

Operator:

We'll take our next question from Neil Mehta with Goldman Sachs.

Darren Woods:

Sure. Neil, as you know, we've talked about this over the years quite a bit. And I would tell you that the whole M&A space and divestment space is something that we are constantly working. Obviously, our strategy, which you've seen us execute over the last several years is buy low, sell high. That's kind of what we're doing. We laid out a divestment program, but we took our time and were patient, waiting for market conditions to develop that would favor us as sellers. And that's what you've seen transacting here, likewise, as we look at acquisitions and opportunities constantly in the market, thinking about that and looking for it. But we've got to find opportunities where we can see a clear synergy and develop a clear competitive advantage so that we bring some unique value to the transaction. And we're evaluating and looking at that in our traditional business so I think with time, those will show up, but we'll be very selective and strategic around that. And I would say, we'll do it when the market conditions are favorable for doing that. On the Low Carbon Solutions, I think longer term, the concept sounds good in terms of M&A. But I would just put that in the context of this is a very immature market. And so there aren't a lot of established businesses out there today that are -- have what it takes to be successful in this space. If you think about starting an industry from scratch and what's required in terms of policy regulation, investment, connecting all the different pieces of a brand-new value chain, that's a complicated equation and fortunately, one that we think plays to our strengths. And the recent deal that we announced with CF Industries, for us really demonstrated that in terms of the complexity of putting together each element of that value chain to successfully come up with a deal that's value accretive and it generates profits. And it's good for the planet, it's good for our shareholders. And so I don't know how much we'll see how that develops. I would think in the M&A space, we may, over time, see opportunities that we can uniquely leverage and then we'll bring those into the portfolio when they make sense to do that.

Stephen Richardson:

Darren, I appreciate all the disclosure around the CF Industries project. I was wondering if you could talk about -- it probably comes as no surprise to anybody that you announced this shortly after the IRA was passed. But also, could you talk about what needs to happen on the policy side to kind of improve that abatement curve and kind of move more projects along? And then also I think in the prepared remarks, you mentioned that there's still some hurdles with permitting and -- do you see that at the local level, state level and where those might be? And then finally, if you could just address returns. How should investors think about the returns available on these projects, considering kind of policy and some of the risks around that versus some of the more conventional Upstream or Downstream projects?

Operator:

We'll take our next question from Sam Margolin with Wolfe Research.

Kathryn Mikells:

Yes, that's fine. I'll jump in, and Darren can add if he has anything. Overall, if you look at our results, we saw strong gas realizations, but we have an overall portfolio that's 60% gas, 40% LNG. The LNG tends to be tied to crude-related prices with a 3- to 6-month lag. So we're seeing the benefit of that lag now kind of coming through our results, and that really came through in the quarter. Overall, from a demand perspective, you're obviously seeing a really tight market. We saw in Europe, the building of inventory and how that has driven prices in Europe, building of inventory ahead of the winter. And so structurally, we would say there's going to continue to be a tight market until supply and demand comes into equilibrium, right, in that there's only 2 ways that happen, either more supply or reduced demand and supply, especially supply of LNG does take time to bring online. It isn't something that is just a spigot that can be turned on overnight. The market is obviously responding to that. We obviously have projects that are bringing more LNG online. Darren mentioned Mozambique, the Coral project reaching first gas production. Recently, we've got Golden Pass, which is going to be coming online in 2024. So we have investments that will bring more capacity online, and the industry, obviously, is responding to this, but it is going to take some time. So I'd say as we look at that seasonality, we're always mindful of what's happening in terms of inventories and when inventories are being built or being drawn and what that means in terms of near-term market conditions. And so it's something we always keep an eye on.

Operator:

We'll take our next question from Jason Gabelman with Cowen.

Kathryn Mikells:

Yes, I'll take the quick question on the dividend. We would have raised the dividend at the same time last year. One of the things I would mention is this is the 40th consecutive year where we've had an annual dividend increase. But we don't have a specific timing determined in any given point of the year in terms of when we make this decision. We look at it over time. We're obviously focused on having a competitive, sustainable, growing dividend over time. We know how important it is to shareholders and roughly 40% of our shareholders are consumers, and we know those people are very much focused on the dividend.

Kathryn Mikells:

And then just one other thing I'd mention, we certainly see some industry supply that's coming on in the fourth quarter, and we commented on that just in terms of our look-forward expectations.

Biraj Borkhataria:

I just wanted to ask about the LNG portfolio again. Could you clarify what proportion of your LNG sales are under long-term contracts and what proportion are sold on a spot basis? The reason I asked is because your assets are performing extremely well in Qatar, Papua New Guinea and Gorgon also. So I just wondered if that has allowed you to sell some incremental spot cargo. So what proportion is under long-term contract? And if I could sneak a second one in, has there been a change to the 2022 Permian production kind of guidance in terms of growth? It looks slightly light relative to at least what I had in. So I was wondering if anything has changed there.

Darren Woods:

Yes. I would say on the Permian, one of the challenges there is over the years, what we've been doing is working really hard to make sure we're maximizing the recovery of that resource. And I think we've talked before about some of the technology that we're bringing to bear to make sure that we are doing that in the most cost-advantaged way. Obviously, as we go through that, we're optimizing and adjusting our development plans. That continues to be the case. So I expect this year, we'll probably come in at about 20% up on last year's growth, which was up 25% from the year before. So still very solid growth in the Permian. And if you look more broadly, we expect basically to meet the objectives that we talked about at the beginning of the year on overall production. If you look at what we had talked about at the beginning of the year for total production this year and where we'll end up, the delta there of about 100,000 barrels a day is really all driven by price entitlements and the fact that we're in much higher price environment. So we feel pretty good about the production growth that we're seeing across the portfolio. We've talked about the record production in the Permian and Guyana is obviously performing very, very well with both of those boats running at above capacity.

Alastair Syme:

Kathy, can I come back to the -- I think, the very first question on energy products. And if we go back to the 8-K at the close of the quarter, you sort of suggested that industry margins would be a headwind of almost $3 billion. And today, your waterfall suggests that you've only really seen half of that. So I just want to understand, I mean, I don't recall there being ever as big a difference between new industry margins and the indicator margins and your realized margins. So what does it do you think about the portfolio that's allowing you to exceed that at such a degree?

Alastair Syme:

Do you think going forward in the 8-K, you would expect to be closer to that industry margin?

Darren Woods:

Yes. I would just add to that the 8-K was really looking at what the market factors are. And then to the extent within the business, we're working hard to improve upon that through the optimization that Kathy mentioned through revenue management across that entire value chain and then trading. And as trading moves and with the accounting rules as that booking happens with time, that comes in less than ratable. We saw that in this margin bucket this quarter. And that will move around as we move forward depending on the price environment that we're in.

John Royall:

Most of mine were asked, but if you could just maybe talk about the status of the refinery strikes in France. I know you had a couple of facilities that were impacted there that I believe are ramping back up. Where are we now with those facilities? And when do you expect them back in full? And do you think it actually has a meaningful impact on your 4Q results for Downstream?

Operator:

We'll take our next question from Ryan Todd with Piper Sandler.

Darren Woods:

Yes, sure. Well, I think the point you make are good ones. The market is tight. And I think generally, the industry -- there's not a lot of capacity as you look across the different steps required to bring on additional production. So I think that is tight. That will, obviously, with time loosen up a little bit. But I think, generally speaking, for the industry, it's constrained. Obviously, every company will have different degrees of freedom in that space. We have some degrees of freedom there, but I would just say we're staying very firmly grounded in our philosophy of making sure that the investments that we make generate high returns at low prices. And so the capital discipline -- my definition of capital discipline is making sure that you spend money that's advantaged and has -- generates good returns even in the down cycle. We're going to stay grounded in that. And so anything that we do on the margin has to, first and foremost, meet that criteria, that it's robust to a wide range of price environments, and that we'd be happy irrespective of what prices we're seeing out the window. We've got capacity to do that, frankly, and some space. So we will, on the margin, spend money to -- where we can see an opportunity to bring that on. But I wouldn't say -- if you look at kind of the range of CapEx that we've provided over the years, we gave ourselves that range, obviously, anticipated movement not only within the year, but across from 1 year to the next. And so we feel pretty good that -- in terms of the ranges that we've provided, our plans going forward are still very consistent with those ranges. And Kathy will spend more time talking about that in December when she takes you through the plan that we will get endorsed with the Board next month.

Paul Cheng:

Just curious that I don't actually record in the product, Exxon talked about trading is a major contributor to the result. Historically, I think the U.S. companies, such as you and tends to take a more conservative approach and trading compared to your European customers. So just curious, are we seeing the company having a somewhat change in the trading strategy going forward? Or that this is just a unique circumstance and that when we're talking about trading, what kind of trading are we referring to that is making a big contribution this quarter?

Kathryn Mikells:

Yes. And then the only thing I would add to that is we are trying to also tell you that there's some impacts that over time, we expect to be neutral. So the fact that we use derivatives to ensure ratable pricing of our refinery crude runs sometimes that's going to give us a positive in a quarter. Sometimes that's going to give us a negative in the quarter. Over time, it should be neutral.

Paul Cheng:

That's great. And Kathy, just curious that the trading also contributed to the strong natural gas price utilization that you record? Or that had nothing to do with that?

Operator:

We'll take our next question from Neal Dingmann with Truist Securities.

Darren Woods:

Yes. I'll touch on that, Neal. I mean, obviously, we're subject to the same broad market forces that everyone is seeing out there and so inflationary pressures across a number of our sectors and activities. I think a couple of things. One is, as you will recall, as we went through the pandemic in the downturn, we were very -- took a very concerted effort to work with our contracting partners and the recognition that we would be back, that we would longer term, be running rigs and putting pipe in the ground. And so tried to enter into contracts that reflected that longer term objective, and that has helped manage some of the inflationary impacts and that we kind of set some contracts back in the downturn with a commitment to continue to spend money going forward. And so that's been an offset. And then, of course, the organization, with all the changes that we've been making. Remember, we took our Upstream organization from 7 plus businesses down to 1 and organized very, very differently. We've centralized a lot of the functions, really trying to harness our scale and leverage the purchasing power that we have and then cut our costs out. So all those efforts to become more efficient and more effective in the marketplace and reduce costs are having a significant impact. We mentioned in the earnings release that to date, we have $6.4 billion of structural savings versus 2019 and we're well on our way to meeting the objective we set by end 2023 of $9 billion in structural savings. So that's helping to offset some of those inflationary pressures. And then on top of that, with the centralized organizations and more effectively leveraging the scale, we're getting what I would call -- what we term as kind of short-term efficiencies, purchasing power, however you want to think about that, that we don't put in the structural bucket, but actually helps us to offset costs. And so we've challenged ourselves to deliver on our expense budget for the year and to offset inflation. The organization is doing a pretty good job at that. I think we'll be within rounding with respect to that. And then next year, the organization is very focused on using the opportunities that have been created through the restructuring of our business to offset those inflationary pressures. And we're going to stretch ourselves to see how much of that we can do.

Operator:

We'll take our last question from Roger Read with Wells Fargo.

Darren Woods:

Yes. Thanks, Roger. I think the industry has been historically pretty good at flexing on capacity to meet the demand. And so I'm optimistic that with time, the market -- and we've proven this, I think, over the years, that the markets will come back into balance, but it is a function of time. I think in the short term, everyone will squeeze what they can. Certainly, you've seen us pushing as hard as we can to make sure that we're running reliably, and we're getting product to the marketplace to meet that need in the market. I know everyone else is trying to do the same. So I think that piece of it is sweating all the existing assets as hard as you can. It's going to help in the short term, but longer -- but more structurally, it's just a function of getting these projects developed and on track. I mean fortunately for us, we've had a very healthy pipeline of projects that have been in work. And so it's not -- we're not out trying to find something to work on. We're basically focused on delivering the pipeline that we've got. And we're bringing on -- as we talked about, we brought in Coral floating LNG out of Mozambique this quarter. That's additional capacity. We're progressing investments in Papua New Guinea. We've got Golden Pass here in the U.S., that's progressing very large LNG export terminal that should come online in 2024. That's going to probably increase the exports out of the Gulf Coast by 20%. So I think the capacity is there. It's just a function of the time it takes to build these very significant projects. And I would also tell you that if you look at on the crude side of the equation, we're making very good progress with the next poke into Guyana. We continue to believe we're going to bring that in a little bit early and we're progressing the ones after that. So I think the capacity is there. It's -- the challenge is executing efficiently so that you're getting -- you're spending your capital efficiently and then doing it in a way that brings it on an expedited fashion, which is what we're focused on doing.

Jennifer Driscoll:

Thanks, Roger. Thanks, everybody, for your questions today. We will post the transcript of the Q&A session on our investor website early next week. Have a nice weekend, everyone, and let me turn it back to Katie to conclude our call. Katie?

Operator:

Good day, everyone, and welcome to this Exxon Mobil Corporation Second Quarter 2022 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to the Vice President of Investor Relations, Mrs. Jennifer Driscoll. Please go ahead, ma'am.

Darren Woods:

Thank you, Jennifer. Good morning and good afternoon, everyone. Thanks for joining us today. Our second quarter operational and financial results were very strong. While the market has clearly been a factor, our results reflect our focus on the fundamentals as well as plans and investments we put in motion several years ago and stuck with through the depths of the pandemic. They also reflect the outstanding work of our teams across the world to operate our facility safely at high utilization levels, which drove needed production and throughput. We are proud of their commitment to supplying the energy and products the world needs and delivering on our strategic priorities. Increased production, higher realizations and aggressive cost control generated strong earnings and cash flow. We also delivered excellent safety and operating performance. As global demand recovers, we continued to invest in our portfolio and grew our year-to-date production in the Permian by about 130,000 oil-equivalent barrels per day versus the first half of 2021. For the full year, in the Permian, we expect to achieve 25% production growth for the second consecutive year. In Guyana, our total capacity is now more than 340,000 oil-equivalent barrels per day. Our Liza Phase 1 development is producing above design capacity with excellent performance. Liza Phase 2 started production earlier this year and has recently reached the design capacity of 220,000 barrels per day. As demand has continued to recover, so is production from our industry-leading refining circuit. We increased throughput by 180,000 barrels per day in the first half of 2022 versus the first half of 2021. We continue to demonstrate our value as an essential partner during the quarter. For example, Exxon Mobil has recently been awarded an interest in Qatar's North Field East expansion. We have worked closely with the Qataris for decades. This attractive agreement further leverages our experience as a global leader in LNG, giving us the opportunity to help grow Qatar's LNG capacity by 30 million tons per annum by 2026. Partnerships such as these are also an important part of unlocking future opportunities in our new businesses like carbon capture and storage. We recently signed multiple MOUs to explore the development of large-scale CCS projects in China, Australia, the Netherlands and Indonesia. Lastly, we further strengthened our portfolio by advancing a significant refining capacity expansion on the U.S. Gulf Coast, discovering new resources in Guyana, progressing LNG production in Mozambique and addressing noncore assets with announced divestments totaling more than $3 billion. We continue to invest through the pandemic with the understanding that demand would recover. With the Beaumont refinery expansion, we're on pace to increase our refining capacity on the U.S. Gulf Coast by more than 17% or 250,000 barrels per day in the first quarter of 2023. During the quarter, we also announced 2 discoveries in Guyana, adding to the estimated recoverable resource base, which is nearly 11 billion barrels. Natural gas began flowing at the Coral LNG project offshore Mozambique. The project remains on track to achieve the first LNG cargo later this year. Finally, we progressed our divestment program at an advantageous point in the cycle, announced asset sales include XTO Energy Canada, our Romanian Upstream affiliate and our Barnett Shale gas assets. Barnett Shell divestment closed in the second quarter. The other 2 are anticipated to close later this year, subject to regulatory approvals. Overall, it was a very strong quarter in both financial results and in progressing our strategic priorities. The strong second quarter results reflect a tight global market environment where demand has recovered to near pre-pandemic levels and supply has attrited. The situation was made worse by the events in Ukraine, which have contributed to increases in prices for crude, natural gas and refined products. In the first quarter, average Brent crude prices rose by about $22 per barrel. In the second quarter, Brent crude prices moved up by another $12 per barrel, pushing the benchmark marginally above the 10-year range. Natural gas prices remain well above the 10-year historical ranges amid ongoing concerns about European supply. Refining margins are even more pronounced versus the 10-year range. They remain at very high levels, reflecting the significant impact on refining capacity resulting from the pandemic. In July, we saw some relief as margins moderated with improved supply and demand balances. Global Chemical margins in contrast remain near the bottom of the cycle. However, we did see a slight improvement in the quarter, mainly in Asia Pacific. Margins in North America tightened during the quarter as product prices continue to lag the steep increases in ethane feedstock cost, consistent with higher gas prices. Before recapping our financial results, let me touch on the market environment that underpins them. As I mentioned in my prerecorded remarks, large annual investments in oil and gas production are required to offset normal depletion, even more is required to grow net production. Prior to the pandemic, industry investments were below historical levels. The economy-wide shutdowns during the pandemic exacerbated the problem. We are now experiencing tight markets across most of our businesses as supply lags demand recovery. We clearly see the tightness in supply in refining, where the closure rate during the pandemic was 3x the rate of the 2008 financial crisis. Given the long investment cycle times, growing supply will not happen overnight. At ExxonMobil, throughout this period, we stayed focused on the fundamentals and led our IOC peers in oil and gas investment. We leaned in when others leaned out, including investments in U.S. refining capacity, notably with our Beaumont refinery expansion. Our investments over the last 5 years are paying off today and helping to meet the needs of families everywhere with greater supply than otherwise would be the case. While progressing investments in our traditional businesses, we are also advancing a portfolio of opportunities consistent with our core capabilities in low-carbon solutions. We expect that these 2 will pay off in the years ahead for our shareholders and for our environment. With that as a backdrop, let's turn to the second quarter financial results. Earnings totaled nearly $18 billion on increased production, higher liquids and natural gas realizations and strong refining margins. We continue to drive efficiencies with $6 billion in structural cost savings versus 2019. We remain on track to achieve more than $9 billion in savings by 2023. CapEx was $4.6 billion in the quarter and $9.5 billion year-to-date. We remain on track for our full year CapEx guidance of $21 billion to $24 billion. Cash flow from operations was $20 billion, further strengthening our balance sheet. Our net debt-to-capital ratio declined to about 13%, while the growth ratio is now at 20%, at the low end of our target range. We returned $7.6 billion to shareholders during the quarter in the form of dividends and share repurchases. The increase in distribution reflects the confidence we have in our strategy, performance we are seeing across our businesses and renewed strength of our balance sheet. I'll conclude with a few key takeaways. As I mentioned earlier, we are now experiencing tight markets across most of our businesses as supply lags demand recovery. Our strong performance reflects the sizable investments we've been making over the past several years and our focus on the fundamentals. Those 2 things put us in a great position to deliver increased production at a time when the world needs it most. We're continuing to increase production of low-cost barrels in Guyana and the Permian. We're doing all of this while maximizing output of our existing facilities, including a new daily production record set by PNG LNG in July. Our new Corpus Christi complex was cash and earnings positive in the first half of the year with the world-scale steam cracker demonstrating design capacity. Our U.S. Gulf Coast refining capacity is poised to increase by about 250,000 barrels per day with the start-up of the Beaumont refinery expansion project in the first quarter of 2023. Two new LNG projects are also advancing. Coral LNG and Mozambique is set to deliver its first cargo in the second half of this year. Our Golden Pass LNG project, which will provide 18 million tons per year of new LNG supplies, remains on schedule to start up in 2024. Once completed, Golden Pass will increase LNG from the Gulf Coast by 20%. In addition, we continue to divest nonstrategic assets at an opportune point in the cycle. We delivered strong safety and reliability while controlling costs. These moves are improving our asset mix, lowering our breakevens and boosting our resiliency. Our Low Carbon Solutions business continues to grow our portfolio of opportunities with the 4 newly announced carbon capture and storage opportunities in Australia, China, Indonesia and the Netherlands. I'm extremely proud of the work our people are doing. All of their efforts are consistent with our strategic priorities, which our shareholders are being rewarded for. Today, with an even stronger balance sheet, we are well positioned to continue to invest and to drive shareholder returns throughout the cycles. Our focus on the fundamentals is unchanged. We continue to leverage our core capabilities to advance our strategic priorities and to make the investments needed in this long-cycle business. With our constancy of purpose and consistent approach, we will successfully address the dual challenge, providing energy and products modern societies need while lowering society's greenhouse gas emissions, leading industry in the energy transition. Thank you.

Operator:

[Operator Instructions]. We'll take our first question from Neil Mehta with Goldman Sachs.

Darren Woods:

Sure. Well, Neil, I think you're touching on what is a very challenging situation today. And that reflects, I think, the complexity associated with making a massive change to a system that's so critically important to people's lives. And so I think going forward and what we're seeing happening today is a, what I'd say, is a broader net being cast with respect to how we think about the transition and how that evolves. Making sure that we've got a diversified portfolio of energy and one -- and sources of energy that are not dependent on any one nation state, which is, I think, an important step that we're seeing being taken. I think there'll be a drive over time to make sure that they're leveraging the resources available to them. And I'll just make one example would be the potential that we see for fracking and unconventional gas in Germany. I think the industry has proven over the years that unconventional gas can be produced safely and you then have a secure source of supply and economically and reliable source of supply. And so I think there's an opportunity where certainly, Exxon Mobil could play a key role. We also have a fairly large refining footprint in Europe. We've been working hard to upgrade those facilities, make sure that we're driving their emissions footprints to zero and developing plans to do that. And within this current crisis, have really stepped up the efforts to reduce our consumption of natural gas. In fact, if you look at our refining circuit, we reduced the use of natural gas by 65%. And -- that's the equivalent gas use for about -- for powering about 2 million homes in Europe. And so there are some substantial steps that we can take with respect to optimizing our current operation. Longer term, we're opening up -- looking at projects to expand our LNG import facilities. And of course, we are bringing LNG projects online. We've got the Golden Pass project here in the U.S., which will allow us to export LNG from the U.S. into Europe. And so we've got Mozambique, and that's coming on the back end of this year. And of course, we've got work going on in PNG. And so bringing more LNG supplies to help offset some of the Russian gas going into Europe will be another really critical step forward and the diversification of supplies for Europe.

Kathryn Mikells:

Sure. I'm happy to take that. So look, as you know, our first priority is to continue to invest in the business. And we talked last quarter about the fact that we expect it to build our cash balance to between $20 billion to $30 billion, which gives us both a strong balance sheet and a strong cash balance, which we view as a competitive advantage that provides us flexibility through the cycle. We're trying to strike the right balance in terms of share repurchases and dividends. As you know, we raised our quarterly dividend by $0.01 in the fourth quarter of 2021. And last quarter, we tripled the size of our share repurchase plan, which is now up to $30 billion of share repurchases this year and next. So we're definitely focused on being efficient as we look to return capital to shareholders. And obviously, the share repurchase program has a secondary benefit of reducing the nominal size of our dividend. So I'd say we're trying to strike the right balance. Our Board reviews this pretty regularly, and we feel good about where we're at right now.

Operator:

We'll go next to Doug Leggate with Bank of America.

Darren Woods:

Sure. Doug, it's good to hear you again. With respect to demand, you're right. If you go back in time, under more normal circumstances, we do see a seasonal decline in the second quarter with gas demand, and that's historically been in the numbers, and we tend to foreshadow that in the first quarter, typically. This year, obviously, circumstances in Europe are very different, and we actually foreshadowed the first quarter that we didn't expect to see the same kind of seasonal dip because of the shortages that we were seeing in Europe at the time. And so I think going forward, obviously, a big question mark will be how the whole landscape and supply picture shapes up in Europe. And also, obviously, a big factor in gas demand will be weather. And so I think I wouldn't take this quarter as the new norm. I think we've just got to stay attuned to how the landscape develops there, what supply looks like and then obviously keep an eye on the weather. With respect to your question on Groningen, it's -- the capacity is there. It's something that the Dutch government obviously has control of and evaluates the circumstances and make decisions in terms of the production that they request our joint venture there NAM to produce. And so that will be a function of how the Dutch government kind of weighs off the demand for gas versus the supplies and the role they want Groningen to play. But the capacity is there.

Kathryn Mikells:

Yes. So let me start with the Board and we are very focused on ensuring that we take an efficient approach in terms of how we're returning capital to shareholders. And obviously, share repurchases are a very efficient way to do that. As we look at the dividend, I'd say there's a number of things that we continue to evaluate. I mean clearly, we think it's pretty critical that we have a competitive dividend. And today, we think we do have a competitive dividend. We do look at that nominal level of the dividend and share repurchases do have a secondary benefit of reducing that level. But I'd also tell you, importantly, all the actions we're taking in the business reduce our breakevens, right? We talked about that a lot at Investor Day. Our breakeven came down to $41 a barrel from $44 kind of last year. We have a trajectory as we looked at the plan that we presented at Investor Day and based on that price set to kind of bring our breakevens down farther to $35 a barrel. So that just builds more resiliency in the business, which makes I'd say, the overall kind of dividend much easy for the company to both sustain and in the future to grow. So that is how we look at it and how we think about that. And as I said previously, we're trying to strike the right balance in terms of growing that dividend and doing buybacks, which have the secondary benefit of reducing that nominal dividend, and they also are a very efficient way for us to return capital to shareholders. And then I'd say, importantly, we want to make sure we're taking an approach as it relates to our cash balance and our overall balance sheet that enables us to sustain both investments and shareholder returns through the cycle. That is how we generate the highest value for shareholders. And so we're very focused on doing that.

Operator:

We'll go next to Devin McDermott with Morgan Stanley.

Darren Woods:

Yes. Devin, I'll touch on that and then see if Kathy has anything to add. With respect to Permian, the plan that we laid out some time ago, and we're currently executing is -- hasn't changed, and we had a very slight ramp-up as we head through the year, but nothing significantly different than what we have been doing. The plans that we have in place should deliver, and our current production is in line with that 25% growth versus last year, which, as you know, was on top of 25% growth the year before. And as we saw on the package, if you look at our tight oil production in the U.S. versus 2017, we expect to end 2022 at 3x the level of production. So I would say the strategy remains in place, the plans that we're actually getting remains in place. We're looking for opportunities within the construct that we define to extend and expand the activities. But frankly, given the tightness in the market, the availability of rigs, there's not a whole lot of opportunity to move there. And maybe I'll ask Kathy to cover the inflationary topic.

Operator:

We'll go next to Stephen Richardson with Evercore ISI.

Darren Woods:

Sure. Happy to do that, Stephen. Thanks for calling in. Yes, you say it's a volatile area. I think the thing that's really changed in the refining landscape, which has impacted -- we're seeing that impact across a lot of industries and parts of our business is the pandemic. If you go back since 2020 and as we've mentioned in our prepared presentation, 3 million barrels a day of refining capacity has come out of the circuit since the pandemic. And what has typically happened, which is 3x the rate of historical levels. And typically, historical levels have been offset by new builds coming in. And of course, a lot of those new builds got pushed out because of the pandemic and the lack of revenue in the extremely negative and poor refining margins. And so we've created this hole with a lot more capacity coming off-line without a whole lot of new capacity, typically out and developing in parts of the world in Asia and the Middle East. That capacity is not coming on. So we've got this gap, demand recovers, and we don't have the capacity to meet that, which has led to a record, record-high refining margins. So I think the solution there is with time for additional capacity to come on. We're pleased that we had justified a fairly large expansion in our Beaumont refinery. Essentially, based on transportation differentials that generated a reasonable return with potential upsides in times of tight markets, which obviously we're going to be seeing as we bring this refinery expansion on. It's the biggest expansion over a decade in the U.S. And it's one that takes advantage of the utilities and the units that we already have and the connection that we have with the Permian. So a very advantaged project coming onto the market at a really good time. Outside of that, I don't see a whole lot of additional expansions here in the U.S. And then as we mentioned in the presentation, over the next 2 years, probably 1 million barrels a day of capacity, including the 2 50 at our site coming on in the marketplace, which is still fairly short of the capacity that came off. And so our view is we're going to see what I say, the tighter supply and demand balance. One of the real question marks out there is what happens with demand. I would tell you, even at 2019 levels, the market is relatively tight. And so I expect a tighter market and maybe elevated margins versus what the historical norm is. But I would expect much lower than what we've experienced here in the second quarter. But -- and then with time, we'll see that capacity come back on out in Asia and the Middle East. And the world market is very efficient, and those barrels will flow to the demand centers and balance things off. And so I think this will be a few year price environment, and we'll get back to what I think is a more typical refining industry structure.

Jeanine Wai:

Question maybe just moving to the asset side of things on Guyana. Exxon has had really tremendous success there and not only just from a resource perspective. Are we at the point where we should be maybe adjusting our thinking on what time lines are just given the really good execution that you've had so far? I guess, where we're going at is each phase has come on faster, capacity is creeping up in the meantime and infill opportunities, they continue to look really promising. So at what point should we kind of be compressing time lines?

Operator:

We'll move next to Sam Margolin with Wolfe Research.

Darren Woods:

Sure. No, thanks for your question. I think it's very timely and relevant. What I would say is, and what we've been talking about is we're pleased with the broader recognition that a more comprehensive set of solutions are going to be needed to address the challenges of an energy transition. And so the discussion evolving from just wind and solar and EVs to carbon capture, storage and biofuels and hydrogen is really important. And the recognition globally and with governments, particularly our government, that those are important technologies that need to be developed. And importantly, the markets need to be catalyzed and early investments incentivized, we think, is a really important development. And so while we -- I'm not real familiar with what's in the legislation since it's just come out, I think it is encouraging to see the recognition and the desire to try to catalyze investments in this space because as we've said, we think they're going to be absolutely critical for society to achieve its longer-term ambitions and to make significant reductions commissions. And so it's a step in the right direction. Our portfolio, we're trying to develop a diversified approach. We've got many of the projects within the portfolio that reduce our own emissions and do it economically. The total returns at about 10% on that portfolio. And of course, Dan running low carbon solutions working hard to improve on that. And then we've got other large projects that where we anticipate incentives coming in either through the market or through policy that we started the planning and development on so that as that policy develops, we'll have a project radian moving into execution. Blue hydrogen is one where that will be beneficial if those incentives come to pass, given the concept that we have there. So I'd say generally a step in the right direction. I would also tell you, moving beyond the U.S. and more broadly looking around the world, a much more significant and serious effort in terms of looking for opportunities in the carbon capture, hydrogen, ammonia space and the biofuel space. And I've been pleased at the interest for governments all around the world and partners all around the world to engage with Exxon Mobil and to leverage the capabilities that we can bring to the space to help develop large-scale projects that make significant reductions and emissions. So I'd say really positive vectors in this space, and we feel good about how we're positioned.

Jason Gabelman:

I wanted to ask about the current investment environment just given what's going on geopolitically in Russia. And I think there's 2 schools of thought out there, one that this is kind of accelerating a push to invest in new lower carbon energy because the current energy system has all these geopolitical risks. And another one that, in fact, we need to invest in more hydrocarbons because the world is clearly short that. So I'm just hoping you could kind of frame broadly where you think the industry, government, how the conversations have gone and if you think the crisis that we're currently in is accelerating the push towards greener energy or hydrocarbons?

Operator:

We'll take our next question from Biraj Borkhataria with Royal Bank of Canada.

Darren Woods:

Yes. You bet, Raj. What I would say is on Groningen, there's significant capacity there. Obviously, there's a balance that has to be struck and I know the Dutch government is very focused on responsible production there as are we. And so I think it won't be a limit of the capacity. It will more be a limit as to what the government thinks is necessary to produce given the circumstances there. So I don't know that there's a -- I wouldn't think of it as a capacity limit with respect to the facilities that we have there, but more of what do we want to do to try to balance the risk and the rewards associated with production out of that field. On the expansion and going above design capacity, I would tell you, been very, very pleased and frankly, proud of the organization and the work they've done really across the entire portfolio. You mentioned Liza and PNG, which are both really good examples and the ones that we've highlighted. But I would tell you, almost all the new projects that we're bringing on, as we line those out and get them up and running, the teams get very quickly focused on debottlenecking and optimizing and taking it above production capacity. And so I think we've got a long history of that. I think the way we have organized our technology and engineering organization now where we can leverage the learnings and capabilities and competencies every part of the organization on to any one particular asset is a huge, huge competitive leverage. And in fact, that's part of the improvements that we're seeing. In fact, at PNG, we brought downstream -- historical downstream optimization technology into that upstream traditional upstream facility, and that's making a big difference seeing that across a number of different platforms. So I don't have a new number to give you in terms of how to think about these. I would just tell you that you should feel comfortable that the organization to push and strive for getting the most -- the kit that we build and the projects that we bring online. And we'll give you updates as we're moving through here on the organization, successful with that to let you know how we're doing and growing that production.

Darren Woods:

10% above.

Roger Read:

Yes. Maybe coming back to a couple of the policy questions that have been asked. Do you have a Slide 5 in the presentation, right, shows investment maybe where it should be versus where it is and where it's projected. And then I'm just curious, as we think about some of the policy you talked about maybe checking the box of all of the above as you're meeting with various governments. Would that allow the global investment to get back on the track necessary as we look out over several years? And if not, wouldn't that indicate that we're going to be looking at multiple years of above normal or above, let's call it, mid-cycle commodity prices? Because when I think about a $41 breakeven, maybe a $60, $65 mid-cycle, but an underinvestment situation that says oil prices are likely to exceed that. Doesn't that set up Exxon very well to, I think, one of the questions asked earlier, be more aggressive on the cash returns front. Just curious how you think that sliding together.

Roger Read:

Can I just ask one kind of clarification on that. If you think about -- and I understand you're doing a lot of things in a lot of different places. But if you think about your investment relative to those various lines, right? What's projected, what's necessary and where Exxon is today? Where do you feel Exxon hits on that curve?

Operator:

Go next to Neal Dingmann with Truist.

Darren Woods:

Yes. So in terms of our organic opportunities in the Permian, it will -- we're not going to step outside of the strategy that we developed in terms of driving capital-efficient production in the Permian. You'll recall we've talked about the corridor approach that we're pursuing in the Delaware. The fact that we've pre-invested in facilities there. We've got a very aggressive technology program that we've been working on for some time now. That's being built and brought into our production and drilling there. And one of the reasons why we're seeing some of the advances and cost and efficiency is driven by a lot of that work we've been doing in the technology space. We've got more technology that we're looking to bring into that. And so that's helping the development and the productivity of that development. We don't want to get too far ahead of that. So there are a lot of parameters that we're keeping an eye on to make sure that we deliver on our commitments to produce there at very low cost, have very low breakevens and high cash flow. That's the way we're thinking about it.

Darren Woods:

I think we are always looking for acquisition opportunities. That has been -- that's always on the radar. And as you know, the key secret or the key advantage there you got to find is assets that fit with your advantages that you can bring additional value and improve value through an acquisition. So absolutely, that remains on the radar. I think as we work these technologies, as we advance our processes and techniques, that opens up additional advantage, which we can then look at and apply to other potential opportunities. So that's kind of the formula that we have there, and we're keeping our eyes open.

Manav Gupta:

My quick question here is we are hearing some worries on -- where we have a debate if U.S. is in a recession or not in a recession globally, also the same debate. I'm just trying to understand whether it's your refining business or your chemicals business? Are you seeing any early signs of recessionary demand kicking in or demand destruction whether it relates to the refining business or maybe your commodity chemical business? If you could help us understand how demand is trending in somewhat of a challenging GDP or global economic data.

Kathryn Mikells:

Yes. The only other thing I would add to that is, overall, when you look at demand recovering from the lows of the pandemic. One of the laggards has been jet, obviously. And so jet continues to lag, but is obviously starting to pick up now as people are starting to travel and obviously, international travel restrictions have reduced, which means people are also starting to travel a bit more internationally. But we continue to also see some effects of COVID. The fact that China was in lockdowns in the second quarter certainly kind of impacted our chemicals business a little bit, right? And so we saw a bit of our volumes coming off there, specifically in Asia, responding to that. So there's going to continue to be these impacts, both the ongoing recovery from the pandemic. And then obviously, some COVID impacts and now kind of intersecting with a bit more uncertainty associated with just the overall macro environment. The last thing I'd say is we tend to be an organization that prepares for the worst and hopes for the best. So I'd tell you, we're certainly preparing for every eventuality.

John Royall:

My question is on the chemicals business. I know you've had some headwinds in 2Q from both a margin and a volume perspective. You had called out China lockdown specifically, and that piece might be a little tough to forecast. But can you speak to your outlook there for the second half in both the U.S. and globally in the Chemicals business?

Kathryn Mikells:

Yes. The only thing I would add is, as we look forward, there are more supply coming on in chemicals specifically. And so we can see projects most of them are targeted in China, and China is obviously long term, one of the fastest-growing markets for chemicals, but we're also seeing some additional supply that's going to come on in North America. And this is obviously part of the cyclicality in the business. Supply tends to come on in large chunks, and it takes a little while for overall supply and demand to then come back in balance. So that's the only other thing that I would add.

Operator:

Looks like we have time for one more question. Our last question will be from Ryan Todd from Piper Sandler.

Darren Woods:

Sure. Yes. Thanks, Ryan. I think if you look at today's technology, it has applicability. It's economic for more concentrated streams of CO2. As you move down the seriatum of emissions, so to speak, and the CO2 concentration becomes more and more dilute, that existing technology becomes more and more expensive. And I think that's one of the key challenges. And so one of the areas that we're working with our technology organizations is developments in technology that allow more economic capture of more diluted CO2 streams. And so I would say that's one constraint that's going to require technical advances to make it more affordable going forward. But outside that, within the streams that have the necessary concentration to make existing technology work, key variables will be storage and access to storage. And access to storage that's geographically close, logistically close because another key point will be the transportation cost. And so kind of requires concentrated streams of CO2, good logistics systems and storage -- abundant storage that's close by. You put those things together, you've got an equation that you can make these projects work with relatively modest incentive schemes. And in fact, that's what you're seeing with the Houston Hub carbon capture projects that we've tabled a very large source of somewhat concentrated CO2 streams that's logistically close to a good storage in the Gulf of Mexico. So all those equations come together. That require additional incentives, but something that would be reasonably inexpensive compared to the cost societies currently bearing to remove CO2. And as you move around the world, the projects that we're looking at have similar constructs to make that -- those projects viable. And then obviously, the governments are looking at what kind of policy would be required to help support those projects.

Darren Woods:

Thanks.

Operator:

Good day, everyone, and welcome to this Exxon Mobil Corporation First Quarter 2022 Earnings Call. Today's call is being recorded. At this time, I'd like to turn the call over to the Vice President of Investor Relations, Mrs. Jennifer Driscoll. Please go ahead, ma'am.

Darren Woods:

Good morning, and thanks for joining us today. As we laid out at our most recent Investor Day, our goal is to sustainably grow shareholder value through the execution of our strategic priorities seen on this slide. As we think about recent events, our job has never been clearer or more important. The need to meet society's evolving needs reliably and affordably is what consumers and businesses across the globe are demanding and what we delivered this quarter. First, we continue to build our competitively advantaged production portfolio, bringing new barrels to market today, driven in part by the high-value investments, we continue to progress through the pandemic-driven downturn in prices. A prime example of the benefits of our continued investments is Guyana. This quarter saw the successful start of the Liza Phase 2. Production is ramping up ahead of schedule and is expected to reach capacity of 220,000 barrels of oil per day by the third quarter of this year. Combined with Liza Phase 1, we will bring our total production capacity in Guyana to more than 340,000 barrels per day. Our third project Payara is running ahead of schedule with start-up now likely by year-end 2023. Yellowtail, the fourth and largest project to date on the Stabroek Block, received government approval of our development plan, is on schedule to start up in 2025. Further adding to our portfolio, we have made 5 new discoveries this year that have increased the estimated recoverable resources to nearly 11 billion oil equivalent barrels. Turning to the U.S., we continue to grow production in the Permian Basin. In March, we produced about 560,000 oil equivalent barrels per day, on pace to deliver a 25% increase versus 2021. Looking forward, we're also growing our globally diverse portfolio of low-cost capital-efficient LNG developments. In Mozambique, the 3.4 million ton per year Coral South Floating LNG production vessel is being commissioned after arriving on site in January. Coral South is on budget with the first LNG cargo expected in the fourth quarter. In addition to investing in high-value opportunities in our existing businesses, we are also advancing opportunities in our Low Carbon Solutions business. During the quarter, we announced plans to build a large-scale hydrogen plant in Baytown, Texas. We anticipate the facility will have the capacity to produce up to 1 billion cubic feet of hydrogen per day. Combined with carbon capture, transport and storage of approximately 10 million metric tons of CO2 per year, this facility will be a foundational investment in the development of a Houston CCS hub, which will have the potential to eliminate 100 million metric tons of CO2 per year and represents a meaningful step forward in advancing accretive low-carbon solutions. We also reached a final investment decision to expand another important carbon capturing storage project at our helium plant in Wyoming. In addition, we received the top certification of our management of methane emissions at our Poker Lake development in the Permian. We're the first company to achieve this certification for natural gas production associated with oil. At the end of the first quarter, we implemented a series of organizational changes to further leverage the scale and integration of the corporation, improve the effectiveness of our operations and better serve our customers. We combined our Downstream and Chemical operations into a single Product Solutions Business. This new integrated business will be focused on developing high-value products, improving portfolio value and leading in sustainability. As a result of these changes, our company is now organized along 3 primary businesses

Operator:

[Operator Instructions]. We'll take our first question from the line of Phil Gresh with JPMorgan.

Kathy Mikells :

Great. Thanks very much. So look, we don't know exactly how long the strong market conditions that we're seeing today are going to persist. And we learned some pretty tough liquidity lessons during the pandemic. So our cash balance has been building a bit. You would see that it was $11 billion as we ended the quarter. So you should expect with the backdrop of the strong market conditions that even with the higher buyback program that we announced this morning, we would be building our cash in the near term potentially between $20 billion to $30 billion over time. And so that really addresses our need for flexibility in what's an incredibly uncertain environment and ensuring that we'll continue to appropriately invest in the business and sustain the share repurchase program that we talked about through 2023. In terms of just how to think about the pace of the program, it's up to $30 billion through the end of 2023. We obviously got $2.1 billion done in this quarter. You should think about us looking to get up to a ratable pace. And that roughly, we'd be looking to get $15 billion done a year, again, looking to sustain the program kind of more consistently over this 2-year period. So that's how I would think about kind of roughly where we see our cash balance and just looking to maintain a lot of flexibility in what's a pretty uncertain environment. And we did learn some real lessons during the pandemic. We used to try and hold our cash balance, call it, between $3 billion and $5 billion and run a lot of commercial paper. And when the pandemic hit, that was quite problematic for the company. So we're going to be a little bit more conservative here in the near term.

Jeanine Wai :

Our question is related broadly to your global gas opportunities. Can you talk about how you see the evolution of the U.S. market? And how do you see certified gas playing a role in U.S. supply? And I guess, do you intend to really look for a global outlet for a portion of your U.S. gas? And we understand that Golden Pass provides a great opportunity to capture the spread, but maybe are you thinking about some other opportunities besides Golden Pass?

Kathy Mikells :

And I would just add, you asked a little bit about that top rating that we got on methane management in Poker Lake in the Permian. And we would say we really see a market over time building for lower emission products, and that really plays into that. And we would certainly hope that we'd also start to see a premium on those lower emission products, right? And we'd say that's consistent across our business, but we definitely are looking to play into that going forward.

Operator:

Your next question comes from the line of Devin McDermott with Morgan Stanley.

Kathy Mikells :

Sure. So I'll start out with just saying, we feel good about the progress that we're continuing to make. At the end of the fourth quarter, we had said we've gotten to about $5 billion in structural cost savings relative to 2019. We're now at $5.4 billion. So I'd say, overall, we feel really good about that progress. Obviously, we have now put in place the new organizational structure, which should drive incremental efficiencies on top of just driving better operations, faster speed to market, better deployment, faster deployment of resources to the highest opportunities across the company. We're not immune to inflation, obviously, and we would see a fair amount of both energy and feedstock inflation coming through the business in certain areas that put a little bit of pressure on margins. Overall, in terms of how we're managing that, it flows through 2 parts of the operation. So one is on CapEx. We feel really good about where we're at there because during the pandemic, we really took the opportunity to extend contracts on work that was coming forward. So I'd say while the shorter cycle work programs obviously have some inflationary pressure, the teams are working really hard to offset that. Overall, I'd say we really try and lever master service agreement, self-manage kind of procurement. We utilize a diverse set of global contractors across the globe in trying to really manage inflation. So through the quarter right now, I'd say we're doing a pretty good job of offsetting it, but it's obviously something that we're watching really closely.

Operator:

Our next question will come from the line of Neil Mehta with Goldman Sachs.

Darren Woods :

Sure. Neil, yes, I can start, and I feel like we're going to be a little bit of a broken record with respect to the anchoring a lot of what we're seeing in the market today across our sectors with the pandemic. And you'll recall, as we were going through that very deep down cycle, where demand for fuels products dropped significantly, there was a lot of refinery rationalization. In fact, the refineries were shutting down at a much, much higher rate than historical averages or tons, if not higher. And so you had a lot of capacity coming out of the marketplace. There were new facilities that were planned or in progress primarily in the Middle East and out in Asia. Those got deferred and delayed because of the occurrence. And so you've got, I think this period of time where you've taken a lot of capacity out and new capacity that was planned or in progress has been deferred and delayed. And so we've got a period with lower supply. And then, of course, this demand has picked up, that has led to this very tight market and the higher margins that we're seeing. What's compounded that then is the important role that Russia plays in supplying markets around the world. And with the uncertainty associated with that supply and potential impacts of additional sanctions that's put, I think, additional concern and anxiety in the marketplace, which is leading to a very high margin environment. One, frankly, that I don't think is a sustainable one; and two, good for economies around the world. So I think we're in a bit of a very tight time frame. And as you've talked about the first quarter, obviously, we saw that evolve over the first quarter with kind of rising margins in January, February, March and now into April, very high margins. And so I think that's something that we're going to see for quite some time, certainly here this year and into next, depending on obviously work how demand plays out. Final point I make, which you touched on is, you're right, this quarter reflects that ramp-up of margins. So you're not really seeing the healthy market that we're experiencing right now in the first quarter results, that will, I think, manifest itself in the second quarter. And then some of the timing impacts we expect to see unwind. Maybe I'll let Kathy just touch on those.

Operator:

Next, we'll go to Doug Leggate with Bank of America.

Darren Woods :

Yes. Thank you, Doug, and I appreciate your compliments to the IR team. I know they've been working hard to make sure that they're improving the transparency and information that you need to help understand what we're doing here and the business results that we're achieving. I think to your point on the balance sheet, and you remember what we started back in 2018 was this countercyclical approach where we lean on the balance sheet during the depths, made those investments with an eye on the fundamentals and expected recoveries and to take advantage of the ups with investments and facilities in the ground and then reinvest and lean into the down cycle. And I would tell you, generally speaking, that continues to be an ambition of ours and part of our strategy is to try to drive the countercyclical investment approach, which is -- has worked out very well for us and is paying off in today's market. But that's, I would say, 1 philosophy. Obviously, it is tempered by just the availability of cash and how deep and high the swings in this commodity cycle are. And so I think part of that balance sheet, and I want to toss it to Kathy here in a minute, let her make some comments on it, but part of that is just going to be a function of where you're at in the cycle and how severe that cycle is. And so there will be periods, I think, where you see some movement in both cash and how the balance sheet is structured. And based on where we're at and where the revenues are, and I would also tell you, though, that it's not what's not going to change is being very focused on making sure that any investment that we make is advantaged across the cycle. You'll recall my definition of disciplined investing is not an absolute level, but more of making sure that anywhere you spend money that you're convinced that you'll be the low-cost supplier with an advantage versus the rest of the industry, that will be successful as you move through the cycle. Kathy?

Operator:

Next, we'll go to Stephen Richardson with Evercore ISI.

Darren Woods :

Sure. Yes. Thank you, Stephen. I think you touched on, I think, a really important part of our strategy as we look at going forward, not only in the plastics and plastics recycling, but also in biofuels. And I think what people have thought about with respect to our refining footprint and the size of that footprint that as fuels, traditional fuels demand declines, if those assets become disadvantaged. And frankly, given the integration that we have with those facilities, if you think about our chemicals and refining facilities integrated, which are now reflected in our Product Solutions business, the fact that we've got base stocks and lubricant facilities integrated with those, they are fairly robust platforms with large scale and low cost. And what we see is the opportunity that as demand shifts to convert those facilities to produce more lower emissions fuels for biofuels and to utilize existing equipment for advanced recycling in plastics. And that's what you've seen us do in Baytown with conversion of some of our heavy cracking facilities on the refining side used to recycle waste plastic. And we've got pretty ambitious plans in that space. We like what we see there. It gives products that have all the same attributes as virgin products, but obviously, without the same -- with the ability to recycle the waste. And so we like the molecular recycling, that's where we're focusing. We think we can bring an advantage there with; one, our facilities; but two, our technology; and then three, with our marketing organization with respect to the marketing of those products. So feel generally good about that. We've got plans to drive that recent advanced recycling to 500,000 metric tons by 2026, should have 30,000 metric tons in place by the end of this year. So I think, in total, we like what we see there. The market today is interested in those products and there is a premium out there. So right now, I think that looks pretty attractive. I suspect with time that may -- the market will stabilize, but we think it's going to be a pretty helpful market for some time to come.

Jason Gabelman :

I wanted to ask a question about your international gas footprint and the maintenance cadence because it seems like you've mentioned in the slides that gas production is going to be higher than it typically is in 2Q and 3Q, but you do have higher scheduled maintenance. So I'm wondering if any of that maintenance is in the European gas footprint. And then more broadly, if you're seeing in the industry in Europe more tempered declines from European gas into the summer, just given where prices are? And if you expect that to be a feature of the market moving forward?

Operator:

Next, we'll go to Sam Margolin with Wolfe Research.

Kathy Mikells :

Sure. I'm happy to take that, Sam. So first of all, I would just remind you that we do have CapEx guidance that's out there, obviously, for this year, it's'21 to 24. And we've talked about kind of through 2027 range of 20 to 25. Now within that, we always try to leave ourselves a little bit of room understanding that there's these opportunities that can come up in the future. And obviously, we've made some investments in the type of opportunities that you're talking about in the past. And by the way, Golden Pass is a JV that we have with foreign investment that sits behind it as well. So I'd say we don't feel any particular pressure. I just reference back to what Darren said earlier, which is, we spend capital when we have confidence behind the projects and the returns that those projects are going to offer, right? And we're, I'd say, very, very disciplined at pressure testing those projects to make sure they're resilience across the, I'd say, wide set of market environment, given the cyclicality that we have in the business. So we feel great about the opportunities that stand in front of us right now. Obviously, we've got a low cost of supply barrels that we're investing in, be it Guyana or the Permian, Brazil. Darren mentioned the LNG projects that we're moving forward, which we feel really good about. Obviously, we've got in a Product Solution space, investments that we continue to make to support growth in high-value products, right, and to keep, I'd say, optimizing our Downstream circuit. So we feel good about that. If there's opportunities where we feel like there's a good return to be earned, we'll certainly look at potentially participating in those opportunities. But we're going to be very disciplined in our approach as you should expect from us.

Operator:

Next question will come from the line of Biraj Borkhataria with RBC.

Darren Woods :

Yes, sure. On Guyana, Biraj, I would tell you that, as you know, we are having tremendous success with respect to discoveries there and the characterization of that resource. And I would just say that our teams have been very focused on making sure we have a good characterization of that resource, which will then be a really important part of how we choose to develop that resource in a cost-effective way to make sure that the cost of supply and obviously, the returns for those projects lead industry. And so as we look at that, these bigger production facilities make a lot of sense when you have the resource to support and because it brings your unit cost down, brings down your cost of supply. As we look at extending those developments in other areas of the resource base, it will be a function of what we find, but I would say we would lean towards these larger developments, and we'll obviously lean towards extending some of the current developments that we have and taking advantage of whatever synergies we might have with those facilities. And so I wouldn't say there's a single recipe here. It's really tailoring the recipe to make sure that it's optimized for the development opportunities that we've got in front of us. And that's going to evolve as we better characterize the resource base. And I will just say, with respect to Golden Pass, that project and the work that we're doing there, we feel good about the progress that we're making, and we're on schedule. The concept there is not changing.

Roger Read :

Maybe to come back a little bit to the Guyana question, and I was -- wanted to clarify 1 thing there. And then maybe just sort of a contrast to your Permian operations given Permian production is higher today, but Guyana resource is probably larger. As we think about the 11 billion barrels of resource, is that -- should we assume that's exclusively oil at this point? I mean that's been kind of our baseline given the type of production coming out. And then how should we think about the long-term gas situation there, the opportunity? And when I said versus the Permian, kind of thinking about those 2 as we look to the middle and latter part of the decade.

Operator:

Your next question will come from the line of Ryan Todd with Piper Sandler.

Darren Woods:

Yes. I'll just start off, and then pass it to Kathy for any additional comments, but I would -- I think the short answer is no. I think we have tried to emphasize looking through the cycles, looking at the long term and making sure that the investments that we make are robust to the whole of the cycle. You remember, we were investing pretty heavily when prices were down in anticipation of longer-term fundamentals. I would say while we're in a very tight market today, we're not going to let that distract us from our focus of making sure that we have low cost of supply, industry-leading advantaged projects. And so that remains the focus. In the short-cycle stuff, I think to the extent that we stay within our credibly advantaged approach and the manufacturing processes that we've set in and the boundaries that we set with respect to the facilities that we've built, we pre-invested in and we'll continue to optimize around that, but we're not going to go outside of that broader strategy of the long ball game that we're playing in the Permian, in the interventional space.

Operator:

Next, we'll go to Paul Cheng with Scotiabank.

Kathy Mikells :

Sure. So overall, I think we talked a little bit about inflation on CapEx and the fact that certainly in the near term, we're feeling pretty good because we did a lot of work during the pandemic. So we had caused some projects. And during the pandemic, we did a lot of work to actually put the contracts in place like finish the engineering and put the contracts in place at a point where I'd say there was some deflationary pressures in the market. So as it relates to our overall capital projects, we feel pretty good over the next couple of years. And obviously, strategically, the timing of when we do the engineering, when we go out to procurement, is something that we're always looking at and taking into consideration. And then I mentioned the fact that doing our own procurement globally to make sure that we're getting globally competitive bids is something else we do. We do spend a lot of money over the years as we're looking forward on the boats associated with Guyana development. And again, we approach that in a really strategic manner, so that we're managing those projects to the lowest cost, getting the specific design that we need. So that's how I would really discuss what's happening with regard to inflation.

Operator:

Next, we'll go to Manav Gupta with Credit Suisse.

Darren Woods :

Sure. Yes. I think it's an unusual time we've got in the chemical market just because we see a level of dislocation between what's happening in Asia and what we see happening in the Atlantic Basin. I think we made reference in the comments that our North America footprint in Chemical and the ethane advantage that we have has actually helped mitigate this broader downturn that we're seeing with the global chemical markets, which are heavily weighted to -- or weighted towards the downturn that we're seeing in Asia. And I think as you look at crude prices coming up and the marginal supply in olefins being a liquid cracker and naphtha feed that as that crude price goes up here, feed goes up and naphtha feed goes up. And so you've got cost increases on your feed. And because of some of the logistics constraints and the ability to kind of connect the market's demand is somewhat dislocated and so you've got oversupply in a market like China where you see some of the demand coming off lockdown and the logistics constraints. So I think you've got -- we're in a unique period right now where you're seeing some regional imbalances and inability to close those imbalances through logistics and transportation. We'll see how long it's going to last. But I think ultimately, as markets open up, we'll see those equilibrate with -- again, I think if crude remains high, my suspicion is that ethane and ethane cracking will continue to be advantaged. And then that will obviously move as crude prices move with respect to gas prices.

Lucas Herrmann :

I just wanted to return to Golden Pass, if I might, and a couple of aspects of the question. The first is just can you expand on the marketing approach? How you intend placing volume? It's a very large project but it's a project which, to the best of my knowledge, has very little by way of contract at this time. So to what extent yourself and your partner QP will -- how you'll be looking to market products? And just can you give us some indication on the phasing of the start-up of the 3 trains? I presume when you talk about 2024 startup, that's the first train. I guess I'd expect 4 to 6 months-or-so between the start-up of each subsequent train, but any guidance you can give there would be helpful.

Lucas Herrmann:

So there's no intent to contract some of the volume in what could be a very constructive market for pricing over the next 2, 3 years for those who have supply coming on this near term?

Operator:

And it looks like we have time for 1 more question, so we'll take that from Neal Dingmann with Truist Securities.

Darren Woods:

Yes. I would tell you that the plan that we had, and we've talked about with respect to the Permian, specifically somewhere between 10 and 12 rigs and then frac crew, something like that. And we're basically, I think, in line with that plan right now. And part of that is making sure that we're -- the developments that we're pursuing are consistent with the base infrastructure, the technology and the capital efficiency approaches that we've built into that development that tends to drive what we're doing there. I think what -- and Kathy has touched on, we, again, had anticipated the market recovery and some of the tightness and so had developed some contracting strategies and partnering with suppliers to try to mitigate that impact. That's paying off. We're seeing that advantage here in the Permian. Eventually, that obviously will roll off. Some of the consumables and some of the labor tight -- tightness that we're seeing in the Permian, obviously, that's starting to impact us as well. So we are seeing inflationary pressures. The expectation is that will continue to grow as the work activity opens up and as some of the logistics constraints get resolved. And we're basically -- we've challenged the team to try to manage that and to make sure that as we look at progressing development and grow that production that we're doing it in a constructive way and not undermining the cost of supply or the advantaged position of those barrels where they sit in the supply -- cost of supply curve for the industry. So I think we're going to -- this disciplined approach that we've talked about is not so much a spend, but in terms of efficiency and making sure that everything -- that every dollar we spend there is productive. And the challenge for that team is to make sure we don't lose productivity of the capital that we're spending.